QuickBooks 2003 Official Guide

Introduction

• How to Use This Book

While I’d like to believe that writing this book was tantamount to writing a

prize-winning novel, I really know that you won’t read this book by starting at

page 1 and continuing to the end. However, there is a progressive logic to the

way the book is organized.

You can consult the table of contents, where you’ll notice that the order of

the chapters reflects the way you’ll probably use your QuickBooks software. The

tasks you perform often (and immediately upon installing the software) are

covered before the tasks you perform less frequently.

The index guides you to specific tasks and features, so when you absolutely

must know immediately how to do something, it’s easy to find the instructions.

However, there are some sections of this book you should read first, just

because accounting software is truly more complex than most other types of

software. You should read Appendix A to learn what information to have at

hand in order to set up your accounting system properly. Then, you should

read the first two chapters so you can configure your system properly. After

that, read the chapter or section you need to in order to perform the tasks that

have to be accomplished immediately.

• What’s Provided in This Book to Help You

There are some special elements in this book that you’ll find extremely useful:

• Tips give you some additional insight about a subject or a task. Sometimes

they’re shortcuts, and sometimes they’re tricks I’ve learned from working

with clients.

• Notes provide extra information about a topic or a task. Sometimes they

provide information about what happens behind the scenes when you

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perform a task, and sometimes they have additional information I think you

might be curious about.

• Cautions are presented to help you avoid the traps you can fall into if a task

has a danger zone.

• Putting QuickBooks to Work is a device for showing you how the tasks

you’re learning can be used in your business. In these supplementary

sections, I’ve illustrated ways in which various businesses have actually

used QuickBooks features. Within these stories, you’ll find information

aimed at helping you use certain features in a more creative and robust

manner. Many of them are workarounds for performing tasks that aren’t

directly supported in QuickBooks.

• You and Your Accountant

One of the advantages of double-entry bookkeeping software like QuickBooks

is that a great many simple bookkeeping tasks are performed automatically. If

you’ve been keeping manual books, or using a check-writing program such as

Quicken, your accountant will probably have less work to do now that you’re

using QuickBooks.

Many accountants visit clients regularly, or ask that copies of checkbook registers

be sent to the accountants’ offices. Then, using the data from the transactions, a

general ledger is created, along with a trial balance and other reports based on the

general ledger (Profit & Loss statements and balance sheets).

If you’ve had such a relationship with your accountant, it ends with QuickBooks.

Your accountant will only have to provide tax advice and business planning advice.

All those bookkeeping chores are performed by QuickBooks, which keeps a general

ledger and provides reports based on the data in the general ledger.

However, you’ll want to check with your accountant as you set up your chart

of accounts (the accounts that make up the general ledger), and also as you link

tax forms to the accounts that are connected to your tax reports.

Throughout this book, I’ve provided information about general ledger postings

as you create transactions in QuickBooks, and you’ll also find references from me

when I think specific information is going to be important to your accountant.

Accountants tend to ask questions about how software handles certain issues

(especially payroll, inventory, accounts receivable, and accounts payable), and I’ve

had many years of experience working with accountants as I set up bookkeeping

software. As a result, you’ll see comments from me such as “your accountant will

probably ask how QuickBooks handles this,” followed by an explanation that you

can give your accountant. There are also a number of places in this book in which

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I advise you to call your accountant before making a decision about how to

handle a certain transaction.

Don’t worry, your accountant won’t complain about losing the bookkeeping

tasks. Most accountants prefer to handle more professional chores, and they rarely

protest when you tell them they no longer have to be bookkeepers. Their parents

didn’t spend all that money on their advanced, difficult educations for that.

• Upgrading the Information in This Book

Like most software applications, QuickBooks is updated, tweaked, and

improved over the course of time. As software features change, so do the

contents of this book. To keep this book up-to-date you can visit this book’s

Web page, which is located at www.cpa911.com.

Besides upgraded instructions, this Web site has lots of tricks, tips, and shortcuts

(hopefully, you’ll add your own discoveries). There’s also a lot of information for

your accountant, explaining the technical accounting processes that go on behind

the scenes as you use your QuickBooks software. Your accountant can also find

information that helps him or her work with QuickBooks clients.

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Part One

Getting Started

Congratulations on deciding to use QuickBooks for your bookkeeping

and accounting needs. This is a big decision, and one that will change

your business life—for the better.

However, installing QuickBooks isn’t the same as installing most

other software programs. For example, with a word processor you

can open the program and dive right in—sending letters to your

family or memos to your staff.

QuickBooks, on the other hand, has to be set up, configured, and

built one brick at a time, before you can begin using it. If you don’t

do the preliminary work, you can’t use the software properly. In fact,

the first time you use QuickBooks, you’ll be asked to take part in an

interview. The software has a slew of questions for you, all of them

designed to help you configure your QuickBooks system properly.

In Part One of this book, you’ll learn how to get through the interview.

I’ll explain what’s really important, what can wait until later, and what

you can do all by yourself instead of through the interview process. I’ll

even explain when it’s okay to lie and how to lie in a way that makes

your QuickBooks database accurate. Part One also includes a chapter

containing instructions and hints about putting all those boring details

into your accounting system, like customers, vendors, and general ledger

information. (Sorry, but these fine points are necessary; you cannot keep

accurate books without them.)

Before you read Part One, be sure you’ve looked at Appendix A,

which I’ve titled “Do This First!” Take that title seriously; it’ll make

getting through all this setup stuff easier.

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Chapter 1

Using QuickBooks for

the First Time I

n this chapter: • Open QuickBooks • Go through the setup interview

• Decide whether to continue the interview

• Perform a manual setup

• Navigate the QuickBooks window

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4 • P A R T O N E GETTING STARTED

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The first time you launch QuickBooks, you have to introduce yourself and your

company to the software by means of a rather substantial setup process. This

process has a lot of tasks to wade through, but it’s a one-time-only job.

• Launching the Software

The QuickBooks installation program may have offered to put a shortcut to the

software on your desktop. If you opted for a desktop shortcut, the easiest way

to open QuickBooks is to double-click that shortcut. If you chose not to put a

shortcut on your desktop, you can use the Start menu, where you’ll find

QuickBooks in the Programs menu. Place your pointer on the QuickBooks

listing in the Programs menu and choose QuickBooks from the submenu.

TIP: For even faster access to QuickBooks, copy or move the desktop

shortcut to your Quick Launch toolbar. Right-drag the shortcut icon onto the

Quick Launch toolbar, and then choose Move Here (or Copy Here, if you want a

shortcut in both places).

•

When QuickBooks opens for the first time, you see the QuickBooks License

Agreement. You should scroll through the entire document so you know what

you’re agreeing to, and then click Yes to indicate you accept the terms of your

QuickBooks license. Once you accept the terms of the license, you’ll never see

this window again.

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The next thing you see is a window that proclaims the product’s name

and a lot of legalese stuff such as copyright information (called a splash

screen in computer jargon). This window goes away by itself. The Welcome

to QuickBooks window appears next, displaying your options for using

QuickBooks for the first time:

Here’s the scoop on what those options offer:

Create A New Company Select this option to begin the process of creating a

company file. All of the steps involved in this task are covered in this chapter.

Open An Existing Company Select this option if you’re upgrading from a

previous version of QuickBooks. The Open A Company dialog box appears so

you can select your company file. QuickBooks offers to upgrade the file to your

new version, and after you click Yes to accept the offer, QuickBooks insists on

making a backup of your file first. When the backup is complete, the file is

converted to QuickBooks 2003, and you can go back to work.

Convert From Quicken Select this option if you are moving to QuickBooks

from Quicken. There are a number of preliminary steps to take before selecting

this option, to make sure the conversion process works properly. It’s beyond the

scope of this book to discuss converting Quicken files to QuickBooks companies,

but if you need additional help, look for articles at http://www.cpa911.com. Select

the QuickBooks Tips link, and then select the article Converting from Quicken to

QuickBooks.

Open A Sample File Click this option to display a list of two sample companies

you can explore and play with in order to get familiar with QuickBooks. One

company is designed for product-based businesses, the other for service-based

businesses.

If you’re not ready to start using QuickBooks, you can exit the software by

clicking the X in the top-right corner of the QuickBooks window, or by choosing

File | Exit from the menu bar. The next time you open QuickBooks, all the

processes described here will start again.

For now, choose Create A New Company because that’s what this chapter is

all about.

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• Starting the Setup Interview

The EasyStep Interview window, shown in Figure 1-1, opens to begin the

company creation process. Click Next to begin the interview.

•

The Welcome Interview

The first section of the interview is the Welcome section. There’s nothing you

have to do in this window, so click Next.

The next window offers you the opportunity to skip the interview altogether.

If you do want to skip it, you can always return later. In fact, you can also enter

most of the information QuickBooks needs by using the functions available on

the QuickBooks menu bar, instead of using the interview. Chapter 2 has a great

deal of information that will help you do this. Incidentally, even if you opt to

skip the interview, you still have to answer several questions by filling out a

dialog box with basic information about your company.

For now, however, move on with the interview so you can learn more about

it before deciding whether to set up a company without the interview.

•

The Company Info Interview

After you read all the information on the pages of the Welcome section

(clicking Next to move through all this stuff), the Company Info portion of the

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FIGURE 1-1 The EasyStep Interview provides an easy-to-follow method of creating a new

company data file.

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interview begins. Remember to click Next to keep chugging along throughout

the entire interview process.

The first item of information QuickBooks needs is your company name, for

which two entry fields are available. The first field is for the real company name,

the one you do business as. The second entry is optional and is used only if the

legal name of your company differs from the company name you use for doing

business. For instance, if your company does business as WeAreWidgets, but the

legal name or corporate name is WAW, Inc., you should fill out both name fields.

Continue to the following windows and fill out the company address, and

then the basic tax information (your federal tax ID number and the starting

month of your fiscal and tax year). The federal ID number is a nine-digit

number in the format XX-YYYYYYY, where XX is a number assigned to your

state and YYYYYYY is the number assigned to your company.

You already have a federal tax ID number if you have employees, and you may

have one if you have a bank account in the business name. (Many banks require

this, although some banks merely ask for a copy of a fictitious name registration

certificate and will accept your social security number instead of a federal ID.)

TIP: If you are a sole proprietor and haven’t bothered applying for a federal

ID number, but instead are using your social security number for tax reporting,

think again. You should separate your business and personal taxes/finances.

The best way to do this is to have an EIN number and a separate bank account

in your business name. Additionally, because you should be thinking in terms of

business growth, you’re going to need a federal ID number eventually to pay

subcontractors, consultants, or employees. Get it now and avoid the rush.

•

QuickBooks also asks which tax form you use for your business. The

common forms for small businesses are:

• 1120 for C Corporations

• 1120S for S Corporations

• 1065 for Partnerships

• 1040 for Proprietorships

Note that these are the tax forms on which income (or loss) is reported, but

there are lots of other tax forms you’ll use in addition to these.

In the next window, tell QuickBooks the type of business you have (see

Figure 1-2). If you don’t see an exact match for your business type, choose

one that comes close. QuickBooks uses this information to create the chart of

accounts, and that’s better than entering your entire chart of accounts manually.

Move through the next windows (which provide information and don’t require

user input) to get to the point at which QuickBooks creates the company file

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you’ll use when you work in the software. A Save As dialog box opens, asking

for a filename. QuickBooks suggests a name based on the company name you’ve

entered, so just click Save to use that filename. Or, if you prefer, you can change

the name of the file (especially if your company name is long or complicated). It

takes a few seconds for QuickBooks to save the company and set up all the files

for the company.

TIP: It’s a good idea to use a filename that hints at your company name,

instead of choosing a name such as Myfiles. Then, if you start another business,

you can choose another specific filename for your new venture. Of course, you

may end up using QuickBooks for your personal financial records, in which case

you’ll want a specific filename for that, too.

•

QuickBooks displays the Income and Expense accounts it has established

for your company, based on the response you made to the interview question

regarding your type of business. You can accept the chart of accounts QuickBooks

shows you, or select the option to create your own chart of accounts (covered in

Chapter 2). It doesn’t really matter which option you select, because you and your

accountant will be adding, changing, and removing accounts as you fine-tune

your QuickBooks files.

FIGURE 1-2 Scroll through the list to find the type of business that matches your own

company.

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NOTE: If you have a QuickBooks expert available (perhaps your accountant),

you can develop your chart of accounts outside of QuickBooks, and then import it.

It’s beyond the scope of this book to discuss the techniques of building a delimited

file with all the right headings that QuickBooks requires, but most QuickBooks

experts know how to do this. It’s my own preferred method of building a chart

of accounts in QuickBooks. I keep a spreadsheet that I can adapt for any client’s

business, which I modify for each client, and then export to a delimited file that can

be imported to QuickBooks.

•

Click Next to move to the next wizard window. You’re asked how many people

will have access to your QuickBooks file (which really means the computer on

which it resides). This is not connected to running QuickBooks on a network; it

refers only to this QuickBooks software on this computer. Many small businesses

permit multiple users access to the computer and accounting software, and if you

plan to do so, you should tell QuickBooks about it. Then, you’ll be able to

determine who sees which part of your accounting records. This is a good way to

keep payroll records away from everyone except the person who enters payroll

data, or to keep employees out of the general ledger (where the totals and

profit/loss reports are).

The question about additional users is worded to mean “in addition to

yourself,” so if nobody but you uses your computer, zero is an appropriate

answer. Incidentally, you can always add users later, so it’s fine to enter zero

and postpone the decision about letting others into your bookkeeping.

NOTE: Restrictions on users are implemented with the use of passwords that

are attached to user names. The password feature is covered in Chapter 21.

•

•

Deciding Whether to Continue the Interview

At this point, having completed the basic steps for creating your company file,

you can continue the interview process or leave it. Everything else you do in

the EasyStep Interview can be accomplished manually. To help you make the

decision, this section presents some things to consider.

In the setup interview, you will be asked about the features you need (such as

inventory tracking or collecting sales tax from customers). You can turn on these

features manually via the menu system or take care of setting them up now. It’s six

of one and a half dozen of the other; there’s no particular advantage to either

approach.

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The setup interview will ask for a starting date, which means you need to

decide on the date your use of QuickBooks begins. Any activity that occurred

in your system before that date is entered as a series of totals. For example,

QuickBooks asks you about the amount of money owed to you by customers as

of that date, and you must fill out the customer information (and the balance as

of the starting date) for each of those customers. The same process occurs for

vendors and, in fact, for all the totals of your accounts (banks, liabilities, and so

on) as of the starting date. QuickBooks adds up all the customer balances and

uses the total as the starting accounts receivable balance.

You can enter customer invoices yourself manually, pretty much in your

spare time. That’s because QuickBooks is date-sensitive. If you tell QuickBooks

your starting date is 3/30, you can enter customer invoices that predate that

starting date (invoices that aren’t yet paid) instead of entering totals in the

interview. This creates the same accounts receivable balance, but you have

details about the invoices.

If it’s early in the year, you can tell QuickBooks that your starting date is the

first day of the year and enter all the transactions for the year. You don’t have to

enter them before you can begin using QuickBooks for current transactions;

you can make your entries in your spare time. If it’s November or December,

you might want to wait until January to start using QuickBooks.

A major problem with doing all of this through the interview process is

that you’re forced to set up accounts in your chart of accounts during the

procedure, and you may want to use a different naming system from the one

QuickBooks presents. Specifically, I’m talking about using numbers for your

chart of accounts instead of names. Numbered accounts also have names, but

the accounts are sorted by numbers. You assign the first digit to reflect the

type of account; for example, assets always start with 1, liabilities with 2, and

so on. After you finish the interview process and begin to use QuickBooks,

you can configure the software to use numbers. However, that choice isn’t

offered during the interview process, so you’re stuck with names instead of

numbers (even though you can switch later). Check with your accountant—I

think you’ll find that he or she is an enthusiastic advocate of numbered

accounts.

Chapter 2 explains how to enter all the information QuickBooks needs

manually, from customers to the chart of accounts.

In the meantime, this section describes the interview process, so you can

either follow along if you’ve decided to complete the interview, read this section

in order to make your final decision, or read this section to get an idea of the

type of information you’ll need if you set up your company file manually.

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The Preferences Interview

The QuickBooks features you plan to use, and assorted other preferences, are

determined in the Preferences section of the EasyStep Interview. Nothing you

enter is etched in stone. After all, you’ll probably change your mind about some

of the responses you give here, because as you work in QuickBooks and get to

know it better, you’ll think of a better way to customize it for yourself.

Inventory Feature

The first thing you’re asked is whether or not you want to use inventory.

Actually, you first are asked whether you maintain inventory in your business,

and then you’re asked whether you want to turn on the inventory features.

If you use inventory, answer Yes to the first question. Regarding the second

question, about turning on the inventory feature, I can give you a good argument

for either choice. If you do turn it on, you are walked through the process of

entering all of your inventory items at the end of the interview.

Personally, I think this is really onerous and I wouldn’t do it. You can enter

your inventory items later, perhaps one morning when your telephones aren’t

ringing off the hook and you’ve had plenty of sleep and several cups of coffee

(and you haven’t just gone through this long interview process). Inventory is

one of those things that has to be entered accurately and precisely if the feature

is going to work properly. If you stock only a few inventory items, you might

want to complete this now; otherwise, wait a while, and when you’re ready, start

by reading Chapters 2 and 10, which cover entering inventory items.

Sales Tax Feature

If you collect sales tax from your customers, you have to tell QuickBooks about

it so it can be added to your invoices. First, answer Yes to the question about

whether or not you are responsible for collecting (and remitting) sales tax.

Then, specify whether or not you collect a single tax or multiple taxes. If you

collect a single tax, fill in the information. If you collect multiple taxes, you

cannot set them up during the interview; you must do that later. Multiple taxes

can be defined in several ways:

• You do business in more than one state and collect sales tax and remit it to

the appropriate states.

• You do business in only one state, but different tax rates apply depending

on the city in which your customer resides.

• You have both of the preceding situations.

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If you do business in a state that has a different sales tax for one city than

it does for other cities (for example, New York City has a higher tax rate than

the rest of New York state, and Philadelphia has a higher tax rate than the rest

of Pennsylvania), then be sure to read the tax law carefully. Some tax rates are

determined by the address of the vendor (which is you), not the address of the

customer. When Philadelphia raised its rate one percent higher than the rest of

Pennsylvania, companies inside Philadelphia had to raise the rate for all customers

(including those outside of Philadelphia), and companies outside of Philadelphia

collected tax from their customers (including Philadelphia businesses) at the lower

rate. Many businesses (and, sadly, many accountants) didn’t understand this and

spent hours changing tax rates on customer records based on customer addresses.

Of course, later, when the details of the tax law became clearer, they had to change

everything back again.

Invoice Form Preference

Choose the invoice form you prefer from the formats available in QuickBooks

(see Figure 1-3). The form can be modified, so pick the one that comes closest

to your own taste, and then read Chapter 3 (see the section called “Customizing

Forms”) to learn how to tweak it to a state of perfection. When you’re actually

creating invoices, all the forms are available, and you can use any of them for

any specific invoice, so the decision you make here isn’t irrevocable.

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FIGURE 1-3 Choose the invoice form that best suits your needs. •

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Payroll Feature

If you have employees, and you plan to do your own payroll processing in

QuickBooks, select Yes to the question about using QuickBooks payroll. If you

have employees and use an outside payroll service, select No.

An employee is someone you pay for whom you withhold taxes and issue

a W-2 form at the end of the year. This includes you, if that’s how you pay

yourself (instead of writing a check that’s a draw against the business income).

Subcontractors for whom you report payments on Form 1099 are not employees.

See Chapters 8 and 9 to learn everything about doing your own payroll.

Estimating Preferences

If you provide estimates and then bill your customers according to a formula

that tracks the progress of a job, QuickBooks has some features you may want

to use. If you answer Yes to this question, the next question inquires whether

you submit more than one invoice against the estimate (which usually means at

certain intervals, based on the percentage of the job that’s completed).

Time Tracking Preferences

If you bill for time and want to track the amount of time you or your employees

spend on each job, an interview question is provided for that, also. You can use

time tracking to calculate payroll for hourly workers, or to track time for internal

analysis of your payroll expense. See Chapters 18 through 20 for information

about using this feature.

Classes Preferences

You also are given an opportunity to turn on the classes feature, which is a way

to combine categories and accounts to create reports that produce an overview.

The feature can be useful for tracking types of customers, types of jobs, or even

profit and loss at branch offices. More information about setting up and using

classes is found in Chapter 21. If you turn on the classes feature here, you must

establish the classes at some point after the interview (or answer No now and

turn on the feature when you’re ready to set up the classes).

TIP: I usually advise people who are just getting started with QuickBooks

to wait a while before turning on the classes features. After you’ve been using

QuickBooks for a while, you may find that some QuickBooks reports don’t provide

exactly the information you want. At that point, you can turn on the classes feature

and configure it for exactly the type of information you’re currently lacking.

•

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