QuickBooks Online Basics

2. Understanding the Chart of Accounts

The Chart of Accounts (COA) is the backbone of your accounting system. It's a list of all the accounts in your general ledger, used to organize your financial transactions. Each account is assigned a unique number and categorizes a specific type of asset, liability, equity, income, or expense.

Common Account Types:

• Assets: What your business owns (e.g., Cash, Accounts Receivable, Equipment).
• Liabilities: What your business owes (e.g., Accounts Payable, Loans, Credit Card Debt).
• Equity: The owner's stake in the business (e.g., Owner's Equity, Retained Earnings).
• Income: Money your business earns (e.g., Sales, Service Income).
• Expenses: Money your business spends (e.g., Rent, Utilities, Salaries, Supplies).

A well-organized COA helps you generate accurate financial reports and understand where your money is coming from and going. You can customize your COA in QBO by adding, editing, or deactivating accounts as needed.

3. Creating Invoices and Receiving Payments

Invoicing is how you bill your customers for goods or services provided. QBO makes it easy to create professional-looking invoices, send them to customers, and track their payment status.

Invoice Workflow:

1. Create Invoice: Go to the "+ New" button and select "Invoice."
2. Fill Details: Enter customer information, products/services, quantities, rates, and terms.
3. Send Invoice: Email the invoice directly from QBO or print it.
4. Receive Payment: When you receive payment, record it in QBO by finding the invoice and selecting "Receive Payment."
5. Deposit Funds: Group received payments and record them as a deposit into your bank account.

Timely invoicing and payment tracking are crucial for maintaining healthy cash flow. QBO allows you to set up recurring invoices for regular billing and send automatic payment reminders.

4. Managing Expenses

Tracking your expenses is just as important as tracking your income. QBO helps you categorize your spending, which is vital for tax purposes and understanding your business's profitability.

Expense Management:

• Connect Bank/Credit Card: As mentioned, this automatically imports transactions, making expense tracking much easier.
• Categorize Transactions: Review imported transactions and assign them to the correct expense accounts in your Chart of Accounts.
• Record Cash Expenses: For expenses paid with cash, you can manually enter them using the "+ New" button and selecting "Expense."
• Attach Receipts: QBO allows you to attach digital copies of receipts to transactions, which is great for record-keeping and audits.
• Bill Pay: If you receive bills from vendors, you can enter them into QBO as "Bills" and then pay them later, helping you manage your accounts payable.

Accurate expense tracking ensures you don't miss out on deductions and gives you a clear picture of your operational costs.

5. Generating and Understanding Reports

Reports are powerful tools that provide insights into your business's financial performance and health. QBO offers a variety of standard reports, and you can customize them to suit your needs.

Essential Reports:

• Profit & Loss (Income Statement): Shows your revenues and expenses over a period, revealing your net income or loss. This is crucial for understanding profitability.
• Balance Sheet: Provides a snapshot of your assets, liabilities, and equity at a specific point in time. It shows what your business owns, owes, and the owner's investment.
• Statement of Cash Flows: Details the cash inflows and outflows from operating, investing, and financing activities. It helps you understand how cash is being generated and used.
• Accounts Receivable Aging: Lists customers who owe you money and how long those invoices have been outstanding. Essential for managing collections.
• Accounts Payable Aging: Shows what your business owes to vendors and how long those bills have been outstanding. Useful for managing your payments.

Regularly reviewing your reports helps you make informed business decisions, identify trends, and prepare for tax season.

6. Bank Reconciliation

Bank reconciliation is the process of comparing your bank statement with your QuickBooks Online records to ensure that both match. This helps identify discrepancies, errors, and ensures the accuracy of your financial data.

Why Reconcile?

• Accuracy: Confirms that your QBO balances match your actual bank balances.
• Fraud Detection: Helps spot unauthorized transactions.
• Error Correction: Identifies missing transactions or data entry errors.
• Compliance: Essential for accurate financial reporting and tax preparation.

Reconciliation Process:

1. Start Reconciliation: Go to "Accounting" -> "Reconcile" in QBO.
2. Enter Statement Details: Input the ending balance and ending date from your bank statement.
3. Match Transactions: Go through your QBO transactions and check them off against your bank statement. Look for matching deposits and withdrawals.
4. Identify Discrepancies: If there's a difference, investigate un-cleared transactions, missing entries, or duplicate entries.
5. Finish Now: Once the difference is zero, complete the reconciliation.

Regular bank reconciliation (ideally monthly) is a critical internal control that ensures the integrity of your financial records.