I’ve set up the Quick Tips page as a way to provide information, helpful hints, and handy tips based on the questions I’ve been asked by our clients. The main topic of the hint is bolded to provide easy scanning. I hope you find the information helpful! Be sure to check this page frequently because I will be adding to it as time permits! If you have a question or a tip you’d like to share, please use the contact us form at the bottom of this page.
Did you know that the IRS offers a free Small Business Resource Guide? The Resource Guide is available on CD and offers information and links to various government agencies. The IRS also provides a free tax calendar that clearly shows filing deadlines, offers informative articles on a wide variety of topics. The guide and calendar are free and available for order at www.irs.gov/publications.
Update Your Payroll Subscription Frequently
With all of the new laws affecting payroll recently, I’m strongly encouraging everyone to keep their payroll subscription current and to check for updates frequently.
Corrupted Backups on Flash Drives
Many people have reported that when they needed to restore a company file backup from a flash drive, the backup file was corrupt and couldn’t be used. After talking to several of these people, many admitted they don’t always remember to use the Windows Safely Remove Hardware feature. That is almost always the cause of corrupted data on a flash drive. You need to use the Safely Remove Hardware feature whenever you are using and external drive or a flash drive.
Tip: Don’t rely on any one type of media for backups. If you’re using flash drives, use more than one and rotate them. Once a week, or, least, once a month back up to a CD and store it offsite.
Cleaning up Confusion in the Chart of Accounts
What is the Chart of Accounts?
The chart of accounts is a list of a company’s accounts and their balances. Each account on the chart of accounts appears either on the balance sheet or the profit and loss statement. Since the chart of accounts determines how your income and expenses are tracked and how they appear on financial statements, it is very important that your chart of accounts be correct and meaningful to your company. QuickBooks comes with a ‘built-in’ chart of accounts based on a particular industry. You can choose to use the recommended accounts during the EasyStep Interview, or you can choose to set up your own chart of accounts. I recommend that you use the accounts recommended by QuickBooks unless you have a very strong accounting background. Remember, the chart of accounts is where QuickBooks gets the information for your financial statements. The only way for your financial statements to be correct and meaningful is if your chart of accounts is correct and meaningful. Good financial statements can be an invaluable tool when making business decisions, by the same token, incorrect financial statements can lead to making very poor business decisions, so let’s take a few moments to look at the chart of accounts.
Types of Accounts
In QuickBooks, you have two main types of accounts, balance sheet accounts (these are accounts that appear on the balance sheet) and income and expense accounts (which appear on your profit and loss statement).
Let’s start with the Balance Sheet Accounts. QuickBooks has ten types of balance sheet accounts.
Bank Accounts – These accounts are used mainly for checking, savings, and money market accounts, but a bank account should also be used to track petty cash. You should have a bank account for each account that you have at a financial institution.
Accounts Receivable – This type of account is used to track the dollars that your customers owe you.
Other Current Asset – This type of account is used to track assets that are likely to be converted to cash within one year.
Fixed Assets – These accounts track depreciable assets the company owns that are not likely to be converted to cash or used up within one year. An example of a fixed asset would be your office equipment or company-owned vehicles.
Other Asset – This type of account is used to track assets that don’t fall into either the other current asset or fixed asset categories. A long-term note receivable is a good example of an other asset.
Accounts Payable – This is where you’ll track money that the company owes to others.
Credit Card – This type of account is exactly what it sounds like, an account to track the use of credit cards.
Current liability – This type of account is used to track liabilities that will probably be paid within one year. Examples are: sales tax, payroll tax, and short-term loans.
Long-term liability – These are debts that aren’t expected to be paid within one year. Examples of long-term liabilities are mortgages, and long-term loans.
Equity – This is where you track the good stuff such as owner equity, retained earnings, and capital investment.
QuickBooks also has income and expense accounts. These accounts are used to track the source of the company’s income and the purpose of all expenses.
Income – This is where you track the company’s main sources of income.
Other Income – This type of account is used to track secondary income such as interest earned.
Expense – These accounts are where you can see exactly how each dollar your company spent was used.
Other Expense – This type of account is used for unusual expenses. In other words, expenses that aren’t a normal part of your business activities.
Cost of Goods Sold – COGS accounts provide a way to track the cost of inventory and items purchased for resale.
There is a wealth of free information available in the QuickBooks community. To access the community, visit http://www.quickbooksgroup.com/. In the Small Business Center, you’ll find information on starting a small business, marketing your business, and find expert tips and advice. Visit the forums to learn more about QuickBooks, find helpful advice from others in your industry on how they have set up their chart of accounts, solved problems, etc. There are even QuickBooks experts on the forums to answer questions. You can access the QuickBooks Library for articles, tips, and tricks. Accessing the community is free, but you must register in order to post on the forums.
Did you know that you can set QuickBooks to automatically check for updates and maintenance releases? When the automatic update feature is turned on, QuickBooks connects to Intuit servers when you’re connected to the internet. You don’t even have to be running QuickBooks for automatic updating to take place! If you disconnect from the internet while QuickBooks is updating, QuickBooks will automatically continue updating from the stop point when you reconnect to the internet. For more information on automatic updating, click Help on the menu bar, and select About Automatic Update.
Understanding Items is critical to using QuickBooks to its maximum potential! The simple definition of items is they are the products or services bought and sold in your business. What do items do? Items make filling out forms easier by filling in price, descriptions, accounts, and whether an item is taxable or nontaxable so you don’t need to re key this information each time you use an item. This also saves on costly errors because QuickBooks doesn’t make typos, humans do. Items do the behind-the-scenes accounting for you by linking transactions to the chart of accounts. Items also calculate amounts on forms. To identify a product or service on a form, it must first be set up as an Item on the Item List. Many people want to set up items as accounts or classes because they want to track sales and profitability of each item. That isn’t necessary! QuickBooks provides a report called the Sales by Item Report. This report provides the number sold, percent of sales, average price, and average cost.
A Service Item includes labor or professional fees. If you uses a service item for subcontractors, QuickBooks records the expenses and income in separate accounts.
An Inventory Part Item is used to designate materials that you buy, track in inventory, and resell.
An Inventory Assembly Item is used to track components of items that you create using other inventory items before selling the item.
A Non-Inventory Part Item is used to categorize items that you buy, but don’t track as inventory. This includes office supplies, products purchased for a specific job, and other items you don’t track as inventory.
A Group Item is used to enter a set of items that go together on forms. Use group items when you sell set of items and don’t want to enter each item individually on a form. When you select a group item, QuickBooks enters each item on the form.
A Sales Tax Item is used to calculate the sales tax or identify a non-taxable item. A Sales Tax Item represents a single tax at a specific rate and pay to a specific agency. You can group sales tax items to include each jurisdiction that you pay sales tax to so that it will show on forms as a single line item, but it includes all jurisdictions.
The Payroll Item List is used to identify everything that affects the amount of a paycheck. For example, deductions are payroll items. Bonuses, commissions, salary, and hourly are all examples of items on the Payroll Item List.
Vendors are those who provide services or products to your business. Vendors include 1099 contractors, those who supply you with the products you sell, those who provide you with things like electricity, phone services, etc., and those who you pay your tax liabilities to. For example, if you hire someone who is not going to be an employee, they are your vendor. The electric company is a vendor because they supply you with electricity. The IRS is a vendor because you pay taxes to them.
Vendor Types are a way of categorizing vendors in a way that is helpful to your business. For example, you could set up vendors by product, location, or how well you like doing business a particular vendor. For even more detail, you would use Vendor subtypes.
Customers are those who buy your products or services.
Customer Types are a way of categorizing your customers in a way that is useful to your business. For example, you could categorize your customers by location, which segment of your business they utilize, or how well they pay their bills.
Jobs are a way of tracking the work you’re doing for your customers, making it easier to know what you’ve done, what you need to do, and when you’ve promised it to your customer.
Job Types are a way of classifying jobs much in the same way customer and vendor types classify customers and vendors.
Classes are a way of sorting information in a way that is useful to your business. They can identify departments, locations, or just about any other way you want to sort information on your profit and loss statement. For example, if you operate three stores and categorize them by class, you would be able to track the profit and loss details for each store individually. If you didn’t categorize information by class, you wouldn’t be able to tell if an item was selling well at all of your stores, or if it was selling well in one particular location and doing poorly in another location. That information is very valuable when determining the management of each store.
Be careful not to confuse items with classes. Items are used to track and provide details for an individual item or service, and a class is used to categorize information by section, department, location, etc.
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