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Running QuickBooks 2011 Premier Editions
By Kathy Ivens
CPA911 Publishing, LLCCopyright © 2010 CPA911 Publishing, LLC
All rights reserved.
Chart of accounts
Managing company files
In this chapter, I'll go over some of the tips and shortcuts for setting up QuickBooks and your company file. Like most of the discussions in this book, the contents of this chapter assume you're not new to QuickBooks, and you know the basics (a book covering every basic task in QuickBooks and also covering every Premier feature would be well over a thousand pages). If you're new to QuickBooks you'll find that the Help Files are quite good at explaining the basic functions for the software.
You can find detailed instructions for installing QuickBooks 2011 in the Troubleshooting QuickBooks section of www.cpa911.com. Those instructions are easier to follow (and more complete) than the installation instructions that come with the software.
In this section I offer some tips for installing QuickBooks the way IT professionals would. These suggestions make it easier to use, repair, and maintain the software.
If you're upgrading to QuickBooks 2011 from an earlier version, it's not a good idea to install an upgrade over an existing version of the software. By default, when you upgrade, QuickBooks assumes you want to replace the previous version.
Instead, install the new version in addition to (not in place of) the old version by changing the installation folder to C:\QB2011 during the install process. This leaves your current version of QuickBooks in place, in case you encounter any problems working with your company file in the new version. When everything is working properly you can remove the older version in the Add/Remove Programs applet of Control Panel.
Create another folder for storing your 2011 company files, e.g. C:\ QB2011CompanyFiles. Creating a discrete location for your 2011 data file prevents QuickBooks from storing files from multiple versions in the same folder.
Copy your existing company files to the new company file folder; don't open a company file from its current location (linked to the previous version of QuickBooks) in QuickBooks 2011.
Alternatively, you can make a backup of your company file and save it in the new folder you created for your QuickBooks 2011 data files; then you can restore the backup file to get started with QuickBooks 2011.
Opening an Existing Company File
If you replace your previous version with QuickBooks 2011 Premier (installing to the same folder that held your previous version), the first time you launch QuickBooks the software opens the company file that was open when you last closed QuickBooks in the previous version. Then the system begins the process of updating the file to Premier 2011.
If you already have a previous version of QuickBooks, and you installed QuickBooks 2011 in a new folder, select File ? Open or Restore Company. Follow the prompts in the wizard, locate the copy of the file you put in the datafile folder for 2011 (not the original file from the older version of QuickBooks), open it, and let QuickBooks begin updating it. This is a good way to install QuickBooks, because it lets you learn the new version without permanently updating your company file from the older version. If something goes wrong with QuickBooks 2011, you can continue to work in the older version until you resolve your QuickBooks 2011 problems.
Restoring a Backup File
If you have a backup of your company file that you want to restore in order to update it to QuickBooks 2011, copy that file to the folder you created to hold your QuickBooks 2011 company files.
Choose File ? Open or Restore Company. Select the option Restore a Backup Copy and click Next. Follow the prompts to select the copy of the backup file (in your new QuickBooks 2011 company file folder), and restore it. QuickBooks updates it to 2011 automatically.
Chart of Accounts
The most important step in your company setup is the creation of your chart of accounts. QuickBooks may have created some accounts for you during the initial setup of your company file, but you'll need additional accounts in order to keep books accurately. In this chapter, I'll discuss creating the chart of accounts, as well the various ways in which you can manipulate the accounts you've created.
It's easier to configure your company file if you create the chart of accounts before you create the other lists you need in QuickBooks. Some of the lists you work with require you to link the list elements you create to accounts. For example, most Items are linked to income accounts.
Designing a Chart of Accounts
If you're designing your own chart of accounts, be sure to do so carefully, because you have to live with the results every time you use QuickBooks. Discuss the design with your accountant, who can help you devise a scheme that works for the types of transactions you have to enter, and the reports you need.
You have several decisions to make about the general format you'll use for your chart of accounts. You need to decide whether to use numbered accounts, and if so, how many digits to use for each account. You should also design a system for the use of subaccounts. Subaccounts make it possible to post transactions in a way that makes it easier to identify the specific categories you're tracking. In addition, you must create a protocol for account naming, and make sure everyone who works with the QuickBooks data files understands the protocol and applies it.
Using Account Numbers
By default, QuickBooks does not assign numbers to accounts, and you should switch your QuickBooks configuration options to correct that oversight. A chart of accounts with numbers is easier to design, and easier to work with. Numbered accounts also have account names, of course, but you can categorize accounts by number, which makes the chart of accounts easier to work with.
The advantage of using numbers is that you can arrange each section of the chart of accounts by category and subcategory. Within each type of account QuickBooks displays your chart of accounts in numerical order (without numbers, QuickBooks displays each section of your chart of accounts in alphabetical order).
For example, if accounts of the type Expense are arranged numerically instead of alphabetically, you can list related expense accounts contiguously. This means you can export reports to Excel and insert subtotals for related categories, which makes it easier to analyze where you're spending your money.
You can also use subaccounts in a numbered chart of accounts to provide subtotals for expenses or income right on your QuickBooks reports, without the need to export the report to Excel in order to perform calculations.
Numbered accounts are useful in avoiding data entry errors when using a bank account. It's best if your main (most commonly used) bank account is at the top of the drop-down list. If your money market account is named for the bank (AlfaSavings), or even if you name the account Money Market, an alphabetic listing puts that account at the top of the bank account list when your operating account is named OperatingAccount, or it's named for the bank, which might be RiversideBank.
My experience with clients shows that this became extremely important when companies changed banks. Suppose the people who enter data in your company file have gotten used to selecting the second account on the list (because that's where your general operating account sits in alphabetic order). If your new account is now the third account on a dropdown list, transactions are going to be posted to the wrong account.
By the time everyone notices, figures out, and gets used to, the new bank list, you'll have a lot of research to do, followed by a lot of journal entries. You'll discover this when you try to reconcile your bank accounts. If you use numbered accounts, you can make sure the bank accounts always appear in the most convenient order. Even if your old bank was number 10000, and you want your new bank to use that number, it's a simple task to edit the original bank number to 14990 (moving it to the bottom of the list of Current Assets) and give the new bank the 10000 number to keep it at the top of the list.
Enabling Account Numbers
To switch to a number format for your accounts, you have to change the QuickBooks preferences as follows:
1. Choose Edit ?Preferences from the menu bar to open the Preferences dialog.
2. Select the Accounting icon in the left pane.
3. Click the Company Preferences tab.
4. Select the Use Account Numbers check box.
All the accounts included in the chart of accounts you selected during company file setup are automatically switched to numbered accounts. These numbers are built in by QuickBooks and you can change them to match the order of accounts you prefer (see "Editing Accounts" later in this chapter).
When you select the option to use account numbers, the option Show Lowest Subaccount Only becomes accessible (it's grayed out if you haven't opted for account numbers). This option tells QuickBooks to display only the subaccount on transaction windows instead of both the parent account and the subaccount, making it easier to find the account you need in the narrow field of a drop-down list. (Subaccounts are discussed later in this chapter in the section "Using Subaccounts.")
QuickBooks does not automatically number accounts you added manually, so you must edit those accounts to add a number to each account record. If some accounts lack numbers, when you select Show Lowest Subaccount Only, QuickBooks displays an error message that you cannot enable this option until all your accounts have numbers assigned. After you've added account numbers to all accounts, you can return to this preferences dialog and enable the option.
Designing an Account Number Scheme
After you've converted your chart of accounts to numbered accounts, you must use the numbers intelligently as you create or edit accounts. It's best to assign ranges of numbers to account types.
You should check with your accountant before finalizing the way you use the numbers, but the example I present here is a common approach. This scheme uses five-digit numbers, because that's the default in Quick-Books 2011, and the starting digit represents the beginning of a range:
NOTE: You can have as many as seven numbers (plus the account name) for each account.
5xxxx Expenses (of a specific type)
6xxxx Expenses (of a specific type)
7xxxx Expenses (of a specific type)
8xxxx Expenses (of a specific type)
9xxxx Other Income and Expenses
You can, if you wish, have a variety of expense types and reserve the starting number for specific types. Many companies, for example, use 5xxxx for sales expenses (they even separate the payroll postings between the sales people and the rest of the employees), then use 60000 through 79999 for general operating expenses, and 8xxxx for other specific expenses that should appear together in reports (such as taxes).
Some companies that track inventory use 5xxxx for Cost of Goods Sold and begin grouping expenses with 6xxxx. Other inventory-based companies start the Cost of Goods Sold accounts in the 45xxx range (since most companies don't have a large number of income accounts, the number range 40000 to 44999 is sufficient for income).
Some companies use one range of expense accounts, such as 70000 through 79999 for expenses that fall into the "overhead" category. This is useful if you want to track overhead expenses so you can apportion them to appropriate classes or jobs.
Also, think about the breakdown of assets. You might use 10000 through 10999 for cash accounts and 11000 through 11999 for receivables and other current assets, then use 12000 through 12999 for tracking fixed assets such as equipment, furniture, and so on.
Follow the same pattern for liabilities, starting with current liabilities and moving to long term. It's also a good idea to keep all the payroll withholding liabilities together.
Usually, as you create new accounts, you should increase the previous account number by 10, so that if your first bank account is 10000, the next bank account is 10010, and so on. These intervals give you room to create additional accounts that belong in the same general area of your chart of accounts.
Accounts Sort Order
You have to create a numbering scheme that conforms to the QuickBooks account types because QuickBooks sorts your chart of accounts by account type (and uses your account numbers within each account type). If you have contiguous numbers that vary by account type, your reports won't be in the order you expect. QuickBooks uses the following sort order for the chart of accounts:
Other Current Asset
Other Current Liability
Cost Of Goods Sold
Non-posting accounts don't post financial amounts to the general ledger. They are created automatically by QuickBooks when you enable features that use those account types, such as Estimates, Purchase Orders, Sales Orders, etc. You can open the account register of non-posting accounts to see the transactions that fall into the appropriate account category, but you don't have to worry about any amounts impacting your financials (which means they don't affect your tax returns).
Displaying Accounts Alphabetically in Reports
As convenient as it is for you (and your accountant) to have numbered accounts so you can track your finances by category and subcategory, suppose you have to submit financial reports to a bank because that's part of the requirements of your line of credit? Your bankers have certain financial categories they look at first, and it's easier for them if your accounts, especially your expenses, are in alphabetical order.
To produce reports without account numbers, putting each account type list back into alphabetical order, turn off the account number feature by deselecting the option in the Preferences dialog. Print the reports, and then turn the feature on again to restore the numbered order.
Account Naming Protocols
You need to devise protocols for naming accounts, whether you plan to use numbered accounts, or only use account names. When you're posting transactions to the general ledger, the only way to know which account should be used for posting is to have easy-to-understand account names.
Your protocol must be clear so that when everyone follows the rules, the account naming convention is consistent. This is important because without rules it's common to have multiple accounts for the same use. For example, I frequently find expense accounts named Telephone, Tele, and Tel in client systems, and all of those accounts have balances. Users "guess" at account names, and if they don't find the account the way they would have entered the name, they invent a new account (using a name that seems logical to them). Avoid all of those errors by establishing protocols about creating account names, and then make sure everyone searches the account list before applying a transaction.
Here are a few suggested protocols — you can amend them to fit your own situation, or invent different protocols that meet your comfort level. The important thing is to make sure you have absolute rules so you can achieve consistency.
Set the number of characters for abbreviations. For example, if you permit four characters, telephone is abbreviated "tele", a three-character rule produces "tel".
Decide whether to use the ampersand (&) or a hyphen. For example, is it "Repairs & Maintenance" or "Repairs - Maintenance"? Do you want spaces before and after the ampersand or hyphen?
After you've done your homework, made your decisions, designed your protocols, and checked with your accountant, you're ready to create accounts.
Start by pressing Ctrl-A to open the Chart of Accounts List. Then press Ctrl-N (the "N" is for "New") to open the Choose Account Type dialog (see Figure 1-1).
Select the type of account you want to create. The major (most used) account types are listed on the dialog. Accounts that are less frequently created by users are listed in the drop-down list you can view when you select Other Account Types.
After you select the account type, click Continue to open the Add New Account dialog. The dialog for creating a new account changes its appearance depending on the account type you select, because each account type contains particular fields to hold relevant information. Figure 1-2 shows the New Account dialog for an expense account.
Excerpted from Running QuickBooks 2011 Premier Editions by Kathy Ivens. Copyright © 2010 CPA911 Publishing, LLC. Excerpted by permission of CPA911 Publishing, LLC.
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