QuickBooks 2005: The Missing Manual

Introduction

Thousands of small companies and nonprofit organizations turn to QuickBooks to keep company finances on track. And over the years, Intuit has introduced editions of QuickBooks to satisfy the needs of different types of companies. Back when milk was simply milk, you either used QuickBooks or you didn’t. Now that milk comes from soy beans as well as cows, and sports five different amounts of fat, it’s no surprise that you can choose from QuickBooks Basic, Pro, Premier, and Enterprise editions, as well as seven industry-specific editions. From the smallest of sole proprietorships to thriving enterprises that aren’t small at all, one of the QuickBooks editions is likely to meet your organization’s needs and budget.

QuickBooks isn’t hard to learn. Many of the techniques that you’re familiar with from other programs work just as well in QuickBooks—windows, dialog boxes, drop-down lists, and keyboard shortcuts to name a few. With each new version, Intuit adds enhancements and new features to make your work flow more smoothly and finish that much faster. The challenge that remains is knowing what to do according to accounting rules as well as how to do so in QuickBooks.

What’s New in QuickBooks 2005

Despite the malleable size of the tax code each year, accounting and bookkeeping practices don’t change all that much. In fact, most of the changes in QuickBooks 2005 are small tweaks and subtle improvements. But a few additions might make you sit up and take notice:

• Applying credits and write-offs is easier now that you can do so as part of creating invoices or receiving payments. When you create an invoice for a customer who has an unused credit (page 219), QuickBooks asks if you want to apply the credit. Similarly, as you receive payments, issuing refunds for overpayments or writing off underpayments now requires only a few clicks.

• As you might expect, or perhaps have already demanded, downloading online payments is much easier and works with many more financial institutions (more than 500 at last count). Chapter 20 explains in detail how to do this.

• QuickBooks merges data from your company file into letters and envelopes, making it fast and fool-proof to generate letters and envelopes in Microsoft Word. You can select a group of customers, vendors, employees, or contacts in your Other Names List and automatically produce letters and envelopes for each (page 508). Plus, QuickBooks makes it easy to create your own letters in Word that merge with QuickBooks data (page 508>).

• If you’ve struggled to find the right report in the past, the improved Report Navigator tells you what each report does, shows you an example of one, and gives you a link you click to run the report. (See Chapter 19.)

• Printing shipping labels and sending packages was easy before with Shipping Manager, but QuickBooks 2005 has welcomed UPS as a shipper in addition to FedEx.

Getting to Know QuickBooks

When you run a business (or a nonprofit), you track company finances for two reasons: to keep your business running smoothly and to generate the reports required by the IRS, the SEC, and any other stakeholders to whom you are responsible. QuickBooks helps you perform your basic financial tasks, track your financial situation, and manage your business to make it even better. Before you read any further, here are a few things you shouldn’t try to do with QuickBooks:

• Track personal finances. Even if you are a company of one, keeping your personal finances separate from your business finances is a good move, particularly when it comes to tax reporting. In addition to opening a separate checking account for your business, track your personal finances somewhere else. If that somewhere else is QuickBooks, at least create a separate company file for your personal financial information.

• Track the performance of stocks and bonds. QuickBooks isn’t meant to keep track of the capital gains and dividends you earn from investments such as stocks and bonds. But companies have investments, of course. A machine that costs hundreds of thousands of dollars is an investment that you hope will generate lots of income and you should track it in QuickBooks. However, in QuickBooks, these types of investments show up as assets of the company (page 6).

• Manage customer relationships. Lots of information goes into keeping customers happy. With QuickBooks, you can stay on top of customer activities with features like To Do items, Reminders, and Memorized Transactions. But for tracking details like membership, items sold on consignment, project progress, and scheduled events, another program would be a better solution.

Choosing the Right QuickBooks Product

This book focuses on QuickBooks Pro, because its balance of features and price make it the most popular QuickBooks edition. But another edition might suit your needs better. Throughout this book, you’ll find notes about features that QuickBooks Basic doesn’t offer as well as features you can get only in one of the Premier or Enterprise editions. Here’s an overview of what each edition does:

• QuickBooks Basic is for the one-user shop. Only one person can work on a company file at a time. This most basic of QuickBooks editions provides typical bookkeeping tasks: invoicing customers, memorizing and sending recurring invoices, tracking payments and sales tax, paying bills, printing checks, tracking inventory and expenses, creating purchase orders, downloading transactions, reconciling accounts, and running reports.

• QuickBooks Pro is the lowest-level edition that allows more than one user at a time in a company file. You can purchase licenses in single or five-user packs. QuickBooks Pro adds features such as job costing; creating estimates; saving and emailing reports and forms from the program; creating budgets automatically; projecting cash flow; tracking mileage; customizing forms; customizing prices with price levels; printing shipping labels for FedEx and UPS; and integrating with Word, Excel, and hundreds of other programs.

• QuickBooks Premier is another multiuser edition. Its big claim to fame is handling inventory that is built out of other items, components, and assemblies. In addition, a Premier edition can generate purchase orders from sales orders or estimates, and can apply price levels to individual items. You can also track employee information and access data remotely. Premier editions come in flavors targeted to several specific industries (see below).

• Enterprise Solutions is for larger operations. It’s faster, bigger, and more robust. Up to 10 people can access a company file at the same time, and this simultaneous access is faster than in other editions. The database can handle twice as many names in its lists—customers, vendors, employees, and others. You can have multiple company files, work in several locations, and produce combined reports for those companies and locations. With more people in your company file, this edition offers features such as an enhanced audit trail, more options for assigning or limiting user permissions, and the ability to delegate administrative functions to other users.

The QuickBooks Premier choices

If you work in one of the industries covered by a Premier edition, you can get the features unique to your industry—for a price that’s a few hundred dollars more than QuickBooks Pro.

• The Accountant Edition is designed to help professional accountants deliver services to their clients. In addition to being compatible with all other editions of QuickBooks, it lets you design financial statements and other documents, process payroll for clients, reconcile client bank accounts, and prepare client tax returns.

• The Construction Edition includes special features near and dear to construction contractors’ hearts: job cost reports, different billing rates by employee, managing change orders, and other contractor-specific reports.

• The Manufacturing Edition is targeted to companies that manufacture products. It includes a Chart of Accounts, menu, and Navigator customized for manufacturing and wholesale operations. You can manage inventory assembled from components and track customer return materials authorizations (RMAs) and damaged goods.

• If you run a nonprofit organization, you know that several things work differently in the nonprofit world. The Nonprofit Edition includes features such as a Chart of Accounts customized for a nonprofit, forms and letters targeted to donors and pledges, help about using QuickBooks for a nonprofit, and the ability to generate the Statement of Functional Expenses 990 form.

Note

QuickBooks Pro does work for nonprofit organizations, but the limitations you must live with can be annoying. As long as funding comes primarily from unrestricted sources, things work reasonably well. Your biggest annoyance is using the term “customer” when you mean donors, members, and other contributors; or the term “job” for grants you receive. Throughout this book, you’ll find notes and tips about tracking your nonprofit’s finances with QuickBooks Pro.

But if you receive restricted funds or track funds by program, QuickBooks Pro forces you to manually post them to equity accounts and allocate funds to accounts in your Chart of Accounts. That is, QuickBooks doesn’t automatically perform these staples of nonprofit accounting. Likewise, the program doesn’t generate all the reports that you might have to produce to satisfy your grant providers or the government, though you can export reports (page 476) and then modify them as necessary in a spreadsheet program.

• The Professional Services Edition (not to be confused with QuickBooks Pro) is designed for the company that delivers services to its clients. Features unique to this edition include project costing reports, templates for proposals and invoices, billing rates that you can customize by client, billing rate by employee, and professional service-specific reports and help.

• The Retail Edition customizes much of QuickBooks to work for retail operations. It includes specialized Chart of Accounts, menus, reports, forms, and help.

Accounting Basics—The Important Stuff

Intuit claims that you don’t need to understand most accounting concepts to use QuickBooks. However, the accuracy of your books and your productivity will benefit if you understand the following concepts and terms:

• Double-entry accounting is the standard method for tracking where your money comes from and where it goes. Following the old saw that money doesn’t grow on trees, with double-entry accounting, money always comes from somewhere. For example, as demonstrated in Table I-1, when you sell something to a customer, the money on your invoice comes in as income and goes into your Accounts Receivable account. Then, when you deposit the payment, the money comes out of the Accounts Receivable account and goes into your checking account.

Note

Each side of a double-entry transaction has a name: debit or credit. As you can see in Table I-1, when you receive a payment, you credit your income account (you increase your income when you receive a payment), but debit the Accounts Receivable account (receiving a payment decreases how much customers owe you). You’ll see examples throughout the book of how transactions equate to account debits and credits.

Table 1.  Table I-1: By balancing the money on each side of a double entry, you not only keep track of where your money is, but you can also catch data entry mistakes.

Transaction	Account	Debit	Credit
Receive payment	Accounts Receivable	$1,000
Receive payment	Service Income		$1,000
Deposit payment	Checking Account	$1,000
Deposit payment	Accounts Receivable		$1,000
Pay for expense	Office Supplies	$500
Pay for expense	Checking Account		$500

• Chart of Accounts. In bookkeeping, an account is a place to store money, just like your checking account is a place to store your ready cash. The difference is that you need an account for each kind of income, expense, asset, and liability you have. The Chart of Accounts is simply a list of all the accounts you use to keep track of money in your company. (See Chapter 4 to learn about all the different types of accounts you might use.)

• Cash vs. Accrual Accounting. Cash and accrual are the two different approaches companies can take to document how much they make and spend. Cash accounting is the choice of many small companies, because it’s easy. You don’t show income until you’ve received a payment, regardless of when that might occur. And, you don’t show expenses until you’ve paid your bills.

  The accrual method keeps income and expenses linked to the period in which they occurred, no matter when money comes in or goes out. With accrual accounting, you recognize income as soon as you record an invoice even if you’ll receive payment during the next fiscal year. If you pay employees in January for work they did in December, that expense stays with the previous fiscal year. The accrual method often provides a better picture of profitability, because income and its corresponding expenses appear in the same period.

• Financial Reports. You need a triumvirate of reports to evaluate the health of your company (described in detail in Chapter 14). The income statement, which QuickBooks calls a profit and loss report, shows how much income you’ve brought in and how much you’ve spent over a period of time. The QuickBooks report gets its name from the difference between the income and expenses in your profit (or loss) for that period.

• A balance sheet is a snapshot of how much you own and how much you owe. Assets are things you own and that have value. Liabilities are the money you owe to others (perhaps money you borrowed to buy one of your assets). The difference between assets and liabilities is the equity in the company—like the equity you have in your house when the house is worth more than you owe on the mortgage.

• The statement of cash flow tells you how much hard cash you have. You might think that the profit and loss report would tell you that, but noncash transactions, such as depreciation, prevent it from doing so. The statement of cash flow removes all noncash transactions and shows the money generated or spent operating the company, investing in the company, or financing.

About This Book

Despite the many improvements in QuickBooks over the years, one feature has grown consistently worse: Intuit documentation. For a topic as complicated as accounting software, all you get with QuickBooks is a small Fundamentals manual, which is little more than a guide to tasks QuickBooks performs, with a reference to the Help topic for each. Any detail to be found is in the program’s online help.

Even if you have no problem reading instructions in one window as you work in another, you’ll quickly discover that QuickBooks help is often unworthy of the screen space it consumes. Topics are terse, offer little in the way of technical background or troubleshooting tips, and lack useful examples (in many cases any examples at all). It rarely tells you why you might want to use any feature. Marking your place, underlining key points, jotting notes in the margins, or reading about QuickBooks while sitting in the sun are out of the question.

The purpose of this book, then, is to serve as the manual that should have accompanied QuickBooks 2005. It focuses on the Windows version of QuickBooks, though nearly all the features work the same or similarly on a Mac.

Note

Although each version of QuickBooks introduces new features and enhancements, you can still use this book if you’re keeping your company books with earlier versions of QuickBooks. Of course, the older your version of the program, the more discrepancies you’ll run across.

In this book’s pages, you’ll find step-by-step instructions for using every QuickBooks Pro feature, including those you might not have quite understood, let alone mastered: progress invoicing (page 207), making general journal entries (page 361), customizing templates (page 534), writing off losses (page 335), and so on. To keep you productive, the book includes evaluations of features that help you figure out which ones are useful and when to use them.

QuickBooks 2005: The Missing Manual is designed to accommodate readers at every technical level. The primary discussions are written for advanced-beginner or intermediate QuickBooks users. But if you’re a first-time QuickBooks user, special boxes with the title “Up To Speed” provide the introductory information you need to understand the topic at hand. On the other hand, advanced users should watch for similar shaded boxes called “Power Users’ Clinic.” These sidebars offer more technical tips, tricks, and shortcuts for the experienced QuickBooks fan.

About the Outline

QuickBooks 2005: The Missing Manual is divided into four parts, each containing several chapters:

• Part 1, Getting Started, covers everything you must do to set up QuickBooks based on your organization’s needs. These chapters explain how to create and manage a company file; create accounts, customers, jobs, invoice items, and other lists; and configure preferences.

• Part 2, Bookkeeping, follows the money from the moment you add charges to a customer’s invoice to the tasks you must perform at the end of the year to satisfy the IRS and other interested parties. These chapters describe how to bill customers, manage the money that your customers owe you, pay for expenses, run payroll, manage your bank accounts, and sundry other bookkeeping tasks.

• Part 3, Managing Your Business, delves into the features that help you make your business a success—or even more successful than it was before. These chapters explain how to keep your inventory at just the right level, how to keep track of time and mileage, how to build budgets and plan for the future, and how to use QuickBooks reports to evaluate every aspect of your enterprise.

• Part 4, QuickBooks Power, helps you take your copy of QuickBooks to the next level. Save time and prevent errors by downloading transactions electronically. Boost your productivity by integrating QuickBooks with other programs. Customize QuickBooks components to the way you like to work. And, most important, set up QuickBooks so your financial data is secure.

At the end of the book, three appendices provide a guide to installing and upgrading QuickBooks, a reference to help resources for QuickBooks, and a quick review of the most helpful keyboard shortcuts.

The Very Basics

To use this book, and indeed to use QuickBooks, you need to know a few basics. This book assumes that you’re familiar with a few terms and concepts:

• Clicking. This book gives you three kinds of instructions that require you to use your computer’s mouse or track pad. To click means to point the arrow pointer at something on the screen and then—without moving the pointer at all—press and release the left button on the mouse (or laptop track pad). To double-click, of course, means to click twice in rapid succession, again without moving the pointer at all. And to drag means to move the pointer while holding down the button the entire time.

  When you’re told to Shift+click something, you click while pressing the Shift key. Related procedures, such as Ctrl+clicking, work the same way—just click while pressing the corresponding key.

• Menus. The menus are the words at the top of your screen: File, Edit, and so on. Click one to make a list of commands appear, as though they’re written on a window shade you’ve just pulled down. Some people click to open a menu and then release the mouse button; after reading the menu command choices, they click the command they want. Other people like to press the mouse button continuously as they click the menu title and drag down the list to the desired command; only then do they release the mouse button. Either method works, so choose the one you prefer.

• Keyboard shortcuts. Nothing is faster than keeping your fingers on your keyboard, entering data, choosing names, triggering commands—without losing time by grabbing the mouse, carefully positioning it, and then choosing a command or list entry. That’s why many experienced QuickBooks fans prefer to trigger commands by pressing combinations of keys on the keyboard. For example, in most word processors, you can press Ctrl+B to produce a boldface word. When you read an instruction like “Press Ctrl+A to open the Chart of Accounts window,” start by pressing the Ctrl key; while it’s down, type the letter A, and then release both keys.

Figure 2.  Figure I-1: Instead of filling pages with long and hard-to-follow instructions for navigating through nested menus and nested folders, the arrow notations are concise, but just as informative. For example, “Choose Lists→Customer & Vendor Profile Lists→Customer Type List” takes you to the menu shown here.

About→These→Arrows

Throughout this book, and throughout the Missing Manual series, you’ll find sentences like this one: Choose Lists→Customer & Vendor Profile Lists→Customer Type List. That’s shorthand for a much longer instruction that directs you to navigate three nested menus in sequence, like this: “Choose Lists. On the Lists menu, point to the Customer & Vendor Profile Lists menu entry. On the submenu that appears, choose Customer Type List.” Figure I-1 shows the menus this sequence opens.

Similarly, this arrow shorthand also simplifies the instructions for opening nested folders, such as Program Files→QuickBooks→Export Files.

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