Join Bonnie Biafore for an in-depth discussion in this video QuickBooks bookkeeping basics, part of QuickBooks Pro 2010 Essential Training.
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QuickBooks makes it easy to get started because it has a lot in common with other programs you use, like dialog boxes, windows, and choosing from dropdown lists. However, to make bookkeeping in QuickBooks or any other accounting program as painless as possible, it helps to understand a few basic accounting concepts. Everything starts with what's called double-entry accounting. In every transaction, money comes from somewhere and goes somewhere. Think about when you pay your credit card bill. The check you write takes money from your checking account to pay the balance on your credit card account.
In QuickBooks, accounts are how you keep track of your company finances. These accounts all live in what's known as a Chart of Accounts, but not just bank accounts. Accounts come in different flavors: income for the money you make, expense for the money you spend and several other types, which you'll learn about later. Then there is cash accounting and accrual accounting. Here is a typical business scenario. You hire a vendor to do billable work from January 2nd to January 15th.
The vendor sends you a bill, which you record in QuickBooks on January 31st. You also invoice your customer on January 31st. That's your big paperwork day. You pay the vendor for this work here on February 28th and finally your customer pays you on April 6th. Your books reflect income from the customer and the vendor's expense differently in cash and accrual accounting. Cash accounting is easy. Expense show up when you pay for products or services here on February 28th when you pay the vendor.
Income shows up when you receive payment from a customer, in this example on April 6th. Notice that the expanse occurs in the first fiscal quarter, but the income doesn't show up until second fiscal quarter. Accrual accounting puts income and corresponding expenses in the same period, no matter when cash goes in or out. That way it's easier to see profitability. Expense occurs as soon as you enter a bill, here January 31st, and that's no matter when you pay the bill.
Income occurs when you record a customer invoice, and that's January 31st. It doesn't matter that your customer pays in the next fiscal quarter. In this example, the income and expense appear during the same fiscal period. Now that you understand how QuickBooks uses accounts in cash or accrual accounting, you can start keeping your books in QuickBooks.
- Establishing a company file and Chart of Accounts
- Creating purchase orders and paying bills
- Invoicing customers
- Tracking time, mileage, and other non-inventory items
- Monitoring sales and inventory
- Paying sales tax
- Reconciling accounts and bank statements
- Running and printing reports