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Common QuickBooks Setup Challenges

If you like taking a set-it-and-forget-it mentality, make sure you set up your QuickBooks file correctly. QuickBooks is incredibly powerful software with as many integrations as you care to explore, but one mistake can lead to infinite headaches trying to correct it, especially if discovered months or years down the road.

Chart of Accounts Construction

What is the Chart of Accounts?

The Chart of Accounts is your accounting architecture. It names and classifies each account as an asset, liability, or equity account on the balance sheet, and revenue or expense account on the profit and loss statement.

How is it used in QuickBooks?

QuickBooks, like all accounting software, uses the chart of accounts to record transactions and compile financial statements. For example, when you set up your bank account, it creates a current asset account for it. When you spend money a credit transaction is entered that reduces your current asset bank account, which reflects the balance in that account, and the other side of the entry (debit) is applied to where that money went (such as an expense account on the profit and loss statement).

Setup Recommendations

One critical element to get right at the beginning is the number of accounts. Many small business owners create too few or too many accounts. Too few, and you won’t account for things properly, such as a new loan account (You can’t simply expense those principal payments). Too many, and your financial statements will be unreadable. For instance, rather than have one account for office expense, you have separate accounts for pens, post-it notes, paper, and more. Your financials will be pages and pages of minor expenses and hard to analyze.

Another critical element to get right is the type of account. Most small business owners put everything on the profit and loss statement and treat it as an expense. However, many of these items should go on the balance sheet, such as payment of liabilities. Take payroll taxes for example. You have a profit and loss account for payroll tax expense, and that’s correct. But do you know what goes there vs. what goes against the federal and state payroll tax liability accounts you have on the balance sheet?

Client and Vendor Account List Organization

What are Client and Vendor Lists?

Client and vendor lists keep track of all things related to those entities, such as contact info, sales and purchases, and outstanding balances.

How are they used in QuickBooks?

These lists are vital to running your operation. They both speed up and standardize processing new orders and allow you to track historic activity in QuickBooks. Initial setup can be time-consuming, but it is also rewarding once complete. Data entry and order processing becomes as simple as clicking a button, and running reports is simple and customizable.

Setup Recommendations

One critical element to get right is address and sales tax classification. Sales tax has become more complex, with over 10,000 different jurisdictions across the country. Thankfully, QuickBooks can handle it, but you need to give it good data. Failing to do so will result in missed sales tax, and an expensive audit paying back taxes, penalties, and interest.

Another critical element is establishing a routine review of all clients and vendors. Creating and paying fake vendors is a common fraud technique, and if you’ve delegated payment responsibilities you may be at risk. Reviewing these lists can help you spot unusual accounts and prevent fraud. But fraud isn’t the only issue. If you have multiple people touching your books, as well as bank and credit card imports occurring, you likely have duplicate accounts with slightly different spelling. Multiple accounts can muddy the waters when analyzing reports, as well as slow down processing as you scroll through dozens or even hundreds of accounts looking for one client or vendor.

While you can add accounts at any time, beware that editing and deleting accounts is trickier. If the account is linked to a prior accounting transaction QuickBooks will ask what you’re doing, as that would affect your books. There will be some leg work to clean things up, and accounts may be listed as inactive and hidden rather than being truly deleted.

Items (Products) List Organization

What are Item Lists?

Item or product lists are similar to above; they keep track of all thing related to each item or product for sale, such as inventory, sales, and cost of goods sold.

How are they used in QuickBooks?

QuickBooks ties these all together with each inventory purchase and sale transaction. With inventory, you create the item, assign a cost and sale price, and link to revenue streams and cost of goods sold. When you buy inventory, it increases the item quantity. When you sell an item, it reduces the item quantity, records the cost of goods sold, and the sale.

Setup Recommendations

One critical element to get right is the initial setup of your product list. Entering anything wrong at this stage will screw up everything down the road, requiring you to go back and make manual changes that negate the benefits of using QuickBooks.

Another critical element to get right is the mapping of revenue streams and cost of goods sold. Bundling everything under one sales and cost of goods sold account will apply to some businesses, but not most. For those businesses, you want to outline your revenue streams and how you run your business before mapping your products. The goal should be opening up QuickBooks at any time, running a report, and knowing immediately which revenue streams are profitable, which aren’t, and what isn’t selling (old inventory).

Similar to above, while products can be added down the road, modifying or deleting products can be tricky.

Working with Haworth & Company, Ltd.

If you’re looking for QuickBooks help near you, look no further. We’ve worked with every version of QuickBooks desktop for years, as well as QuickBooks Online. Our team of accountants, CPA’s, ProAdvisors and payroll specialists have seen it all and would love to help you too. We offer both monthly accounting programs, recording, reconciling, and compiling your financial statements for you, as well consulting-only programs to answer your questions on your schedule. Or, if you’re tired of doing it yourself and want a fresh start, we have solutions for you too! Give us a call and let’s get started.


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