Loading the Master File Lists

Setting up QuickBooks, as a practical matter, requires that you take two steps: Run the EasyStep Interview, and load the master file lists. The master file lists store information that you can use and reuse. For example, one of the master file lists describes each of your customers. And this master file of customer information includes the customer's name and address, contact information, account numbers, and so on.

One important note: You don't need to completely fill your master files before you start doing anything. If you enter your active customers into the customer master file, your active vendors into the vendor master file, and so forth, that amount of information may be all you need to get started. With the information you entered through the EasyStep Interview and the addition of a few more entries into key master files, you may be able to add everything else on the fly. QuickBooks enables you to add entries to the various master files as you work with windows and dialog boxes that reference master file information.

Setting up the Chart of Accounts List

The Chart of Accounts List is a list of accounts that you use to categorize your income, expense, assets, liabilities, and owner's equity amounts. If you want to see a particular line item of financial data on a report, you need an account for that line item. If you want to budget by a particular line item, you need an account for that budget amount. If you want to report some bit of financial information on your tax returns, you need an account to collect that specific data.

Fortunately, the steps for creating new accounts are quite straightforward. To set up a new account within your Chart of Accounts List, follow these steps:

1. Choose the Lists ð Chart of Accounts command.

   QuickBooks displays the Chart of Accounts window shown in Figure 1.

   Figure 1: The Chart of Accounts window

2. Click the Account button at the bottom of the window.

   QuickBooks displays the Account menu. One of the Account menu options is New, which is the command that you use to add a new account.

3. Add a new account by choosing the New command from the Account menu.

   QuickBooks displays the first Add New Account window, as shown in Figure 2.

   Figure 2: The first Add New Account window

4. Use the Type buttons to identify the type of account that you're adding.

   QuickBooks supplies the following account types: Income, Expense, Fixed Assets, Bank, Loan, Credit Card, Equity, and, if you mark the Other Accounts Type and open the Other Accounts Type drop-down list, Accounts Receivable, Other Current Asset, Other Asset, Accounts Payable, Other Current Liability, Long Term Liability, Cost of Goods Sold, Other Income, and Other Expense. If you have a question about which account type your new account fits into which describes how financial statements work. These account groups essentially tell QuickBooks in which area of a financial statement account data gets reported. Note, too, that the first Add New Account window shows examples of the selected account type in the box above the Continue and Cancel command buttons.

5. Click Continue.

   QuickBooks displays the second Add New Account window, as shown in Figure 3.

   Figure 3: The second Add New Account window

6. Use the Name box to give your new account a unique name.

   The name that you give the account will appear on your financial statements.

7. If the account you're adding is a subaccount underneath a parent account, identify the parent account by selecting the Subaccount Of check box.

   After you select the Subaccount Of check box, name the parent account by using the Subaccount Of drop-down list.

8. (Optional) Provide a description for the new account.

   You don't need to provide a description. Without a description, QuickBooks can still use the account name on financial statements. If you want a more descriptive label placed on accounting reports, however, use the Description box for this purpose.

9. Provide other account information.

   The Add New Account window shown in Figure 3 includes a Bank Acct. No. box that lets you record the bank account number for a particular bank account. Other account types may have similar boxes for storing related account information. For example, the credit card account type version of the Add New Account window lets you store the card number.

   If you do have another box or two in which to store account information, go ahead and use that, if necessary, to collect the bits and pieces of data that you want to save.

10. Identify the tax line on which the account information is to be reported by selecting a tax form and tax line from the Tax-Line Mapping drop-down list.

    You may not need to assign a particular account to a tax line if that account data isn't reported on the business's tax return. For example, cash account balances aren't reported on a sole proprietor's tax return. So a bank account for a sole proprietor doesn't have any required tax line data. Cash account balances are recorded on a tax return of a corporation, however. So if you're adding a bank account for a corporation, you use the Tax-Line Mapping drop-down list to identify the tax line on which the bank account information gets reported.

11. (Optional but dangerous) Consider recording an opening balance for the account.

    Typically, you shouldn't supply an opening account balance for an account. But the second Add New Account window does let you do so. For example, in the dialog box shown in Figure 3, you can click the Enter Opening Balance command button. When you click this button, QuickBooks displays another dialog box that you can use to set a starting account balance. All this sounds rather innocuous. But, seriously, this is something you rarely do. However, if you know something I don't, you can use this capability to set the starting balance for the account as of some date. One last caution, however. My accounting professors taught me two things that would suggest that this approach to setting account balances is crazy:

    • Debits are supposed to equal credits. (If you're setting the opening balance for an account as part of setting up the new account, you're only recording half of the accounting transaction.)

    • Entering the opening balance as part of setting up a new account means no audit trail exists for the transaction. (Rather than having an invoice associated with a transaction or a check, or even a general journal entry, you're just setting balances on the fly. But hey, maybe you know something I don't…)

After you describe the new account that you want to set up, you can click OK to save the new account to the Chart of Accounts List. You can also click the Next button to save the account information and then redisplay the Add New Account window so that you can add another account.

Tip

If you look closely at Figure 3, note some boxes and buttons and even a hyperlink that I haven't talked about. QuickBooks does supply other fields for collecting account information. And, occasionally, QuickBooks also provides clickable hyperlinks and buttons that you can use to do special tasks associated with the particular type of account. For example, in the case of a bank account, QuickBooks supplies an Order Checks hyperlink that you can click to start the process of ordering check forms for the new account.

And that's almost everything you need to know about adding accounts. The one other thing I should mention is that the Account menu — this is the menu of commands that QuickBooks displays when you click the Account button available on the Chart of Accounts window — provides several other useful commands for working with accounts. The menu provides a Delete command that you use to delete the selected account (as long as you haven't already used the account). The menu provides an Edit button that you can use to make any changes to the selected account information (by using a window that looks very much like the New Account window shown in Figure 3). The Account menu also provides other commands that you can use to work with the Chart of Accounts List. Fortunately, most use self-descriptive command names: Print List, Make Inactive, and so on.

Tip

The Activities button, which appears at the bottom of the Chart of Accounts window, displays a menu of commands that you can use to write checks, make deposits, enter credit card charges, transfer funds, make journal entries, reconcile a bank account, and use a register. The Reports button displays a menu of commands that you can use to print reports containing account information.

Running the EasyStep Interview

After you install the QuickBooks program, the installation program may start QuickBooks automatically and then start the EasyStep Interview. You can also start the EasyStep Interview by starting the QuickBooks program the same way you start any program — by choosing the File ð New Company command.

The Big Welcome

The Welcome screen of the EasyStep Interview appears when you choose the New Company command. The screen provides some general information about setting up a new company within QuickBooks. The screen also provides links — such as the link you can click to get help from a QuickBooks certified advisor. (QuickBooks advisors, by the way, are people who have taken a test about QuickBooks and paid $500 to Intuit to get a copy of QuickBooks and be listed on the QuickBooks Web site as a QuickBooks advisor.) You probably want to read through this screen's information, but when you're ready to begin, click the Start Interview button.

Figure 1: The EasyStep Interview window showing the Welcome message

Tip

The EasyStep Interview walks you through a bunch of screens full of information. To move to the next screen, you click the Next button. To move to the previous screen, you click the Prev button. If you get discouraged and want to give up, you can click the Leave button. But try not to get discouraged.

Supplying Company Information

The first few screens of the EasyStep Interview collect several important pieces of general information about your business, including your company name and the firm's legal name, your company address, your federal tax ID number, the first month in the fiscal year (typically January), the type of income tax form that your firm uses to report to the IRS, and the industry or type of company that you are operating (retail, service, and so forth), as shown in Figure 2.

Figure 2: The first screen of the EasyStep Interview collects general company information

After collecting this general company information, QuickBooks creates the company data file that stores your firm's financial information. QuickBooks suggests a default name or a QuickBooks data file based on the company name (see Figure 3). All you need to do is accept the suggested name and the suggested folder location (unless you want to save the data file into the My Documents folder, which isn't a bad idea).

Figure 3: The Save As dialog box

Customizing QuickBooks

After QuickBooks collects the general company information mentioned in the preceding paragraphs, the EasyStep Interview asks you some very specific questions about how you run your business so it can set the QuickBooks preferences. Preferences, in effect, turn on or off various accounting features within QuickBooks, thereby controlling how QuickBooks works and looks. Here are the sorts of questions that the EasyStep Interview asks to set the QuickBooks preferences:

• Does your firm maintain inventory?

• Do you want to track the inventory that you buy and sell?

• Do you collect sales tax from your customers?

• When do you sell items?

• What invoice format do you want to use to bill customers?

• Do you want to use sales orders to track customer orders and backorders?

• Do you want to use QuickBooks to help with your employee payroll?

• Do you want to prepare written or verbal estimates for your customers?

• Do you ever prepare more than one invoice for an estimate (if you want to do progress billing or partial billing)?

• Would you like to track the time that you or your employees spend on jobs or projects for customers?

• Do you want to use classes to further segregate income and expense, assets, liabilities, and owner's equity data?

• How do you want to handle bills and payments (enter the checks directly, or enter the bills first and the payments later)?

• How often do you want to see your Reminder List?

• Do you prefer to view reports on an accrual or cash basis?

Setting Your Start Date

Perhaps the key decision that you make in setting up any accounting system is the day on which you begin using your new system. This is called the conversion date. Typically, you want to begin using an accounting system on either the first day of the year or the first day of a new month. Accordingly, one other big question the interview asks you is about the conversion date. You're prompted to identify the start date by using the dialog box shown in Figure 4.

Figure 4: This EasyStep Interview dialog box lets you select the start date

Tip

The easiest time to start using a new accounting system is at the beginning of the year. The reason? You get to enter a simpler trial balance. At the start of the year, for example, you enter only asset, liability, and owner's equity account balances.

At any other time, you also enter year-to-date income and year-to-date expense account balances. Typically, you have this year-to-date income and expense information available only at the start of the month. For this reason, the only other feasible start date that you can pick is the start of a month.

In this case, you get year-to-date income amounts through the end of the previous month from your previous accounting system. For example, if you've been using Peachtree, get year-to-date income and expense amounts from Peachtree.

After you provide the start date, you've accomplished three stages of the interview: You've supplied the basic company information, you've identified most of your accounting preferences, and you've identified the date on which you want to start using QuickBooks. You're almost done.

Tip

If you click the Leave button, QuickBooks leaves you in the QuickBooks program, ready to get to work. However, the EasyStep Interview process isn't lost forever; to get back into the interview, just open the file you were in the process of setting up. When you do, the EasyStep Interview restarts.

Adding Bank Accounts

During the EasyStep interview, you're asked about any bank accounts you use in your business, as shown in Figure 5. You just name the bank accounts.

Figure 5: The EasyStep Interview collects information about your bank account(s)

Reviewing the Suggested Chart of Accounts

At the very end of the EasyStep Interview, based on the information that you supply about your type of industry and the tax return form that you file with the IRS, QuickBooks suggests a starting set of accounts — accountants call it a chart of accounts. These accounts are the categories that you use to track your income, expenses, assets, and owner's equity. Figure 6 shows the screen that the EasyStep Interview displays for showing you these accounts.

Figure 6: The EasyStep Interview screen shows you its recommended income and expense accounts

The accounts that QuickBooks marks with a check, as the screen explains, are the recommended accounts. And if you don't do anything else, these checked accounts are the ones you'll use (at least to start) within QuickBooks. However, you can remove a suggested account by clicking the check mark. QuickBooks removes the check mark and that means the account won't be part of the final chart of accounts. You can also click an account to add a check mark and have the account included on the starting chart of accounts.

Tip

You can click the Restore Recommendations button at the bottom of the list to return to the initial, recommended chart of accounts (if you made changes you later decide you don't want).

When the suggested chart of accounts looks okay to you, click Next. It's fine to just accept what QuickBooks suggests because you can later change the chart of accounts.

Looking at the QuickBooks Learning Center window

After you finish with the EasyStep Interview, QuickBooks displays the QuickBooks Learning Center window, as shown in Figure 7. This window provides clickable hyperlinks that you can use to view tutorials that provide a "big picture" overview of how you work with QuickBooks. There's good stuff here, so if you're new to QuickBooks, go ahead: poke around. After you finish poking, click the Begin Using QuickBooks button and the QuickBooks program window comes into full view. Now, finally, you can begin to enter accounting data into QuickBooks. Whew.

Figure 7: The QuickBooks Learning Center window

Dealing with the Pre-Interview Jitters

After you install QuickBooks, you run an interview to set up QuickBooks for your firm's accounting. In the next sections, I explain what you need to do before you run the QuickBooks setup interview so that you work in an efficient manner. I also give you an overview of what you'll do as you go through the interview.

Preparing for the Interview

By running the interview, you provide quite a bit of information to QuickBooks. As a practical matter, the EasyStep Interview and the post-interview cleanup require that you have the following:

• Accurate financial statements as of the conversion-to-QuickBooks date

• Detailed records of your accounts payable, accounts receivable, inventory, and fixed assets

• A complete or nearly complete list of employees, customers, vendors, and inventory items (if you buy and sell inventory)

You want to get all this stuff together before you start the EasyStep Interview because you're asked about this stuff as part of the interview. Don't try to scurry around, looking for a particular piece of data while you're running the interview; collect this data up front. Then stack all the necessary paperwork on your desk next to your computer.

Let me also note that you're going to make several accounting decisions as you go through the EasyStep Interview. For example, you decide whether you want to use an accounts payable system. You tell QuickBooks whether you want to send customers monthly statements. You're also asked whether you want to prepare estimates for customers. And you're asked whether you want to use classes to further track your income and spending.

In general, when you're asked one of the accounting questions, you can simply accept the default answer. However, you're required by law to be consistent in your accounting for tax purposes. If you want to change your accounting — technically called a change of accounting method by the Internal Revenue Service — you must request permission to make the change from the IRS. How to do this and the ramifications of doing this are beyond the scope of this book, but be forewarned: The IRS insists that you be consistent in your accounting. If you've been treating particular items of income or expense in a certain way, the IRS says, "Hey, dude, you must continue to treat them that way unless you get permission from us to change."

One final note: You should have your tax return from last year handy because it supplies a bunch of information that you need for running the EasyStep Interview. For example, last year's tax return supplies your taxpayer ID number, your legal business name, and your method of accounting.

What Happens during the Interview

As you walk through the interview, you work with QuickBooks to set up the QuickBooks preferences (which determine how QuickBooks works and which features are initially available) and to set up a chart of accounts and your bank accounts.

The chart of accounts, just so you know, identifies those income, expense, asset, liability, and owner's equity accounts that appear on your financial statements.

After you complete the EasyStep Interview, you're almost ready to begin using QuickBooks. In fact, in a pinch, you could (after the EasyStep Interview) limp along with QuickBooks.

Warning

An important point of clarification: You might think that you should be ready to rock and roll after installing QuickBooks and running through the EasyStep Interview. However, you have two other QuickBooks setup tasks to complete after the EasyStep Interview: identify your starting trial balance and load your key master files. The trial balance identifies your year-to-date income and expense numbers; and your asset, liability, and owner's equity numbers as of the conversion date. The master files store information that you repeatedly use about customers, vendors, employees, and inventory items. For example, the customer master file stores a customer's name and address, phone number, and the contact person.