Stephen L. Nelson, MBA, CPA, MS, is a CPA in Redmond, Washington, where he provides accounting, business advisory, and tax planning and preparation services to small businesses. He also teaches CPAs how to help their clients use QuickBooks more effectively. He is the author of 100+ books about how to use computers to manage finances.

Introduction 1

About This Book 1

Foolish Assumptions 2

Icons Used in This Book 3

Beyond the Book 4

Where to Go from Here 4

Book 1: An Accounting Primer 7

Chapter 1: Principles of Accounting 9

The Purpose of Accounting 10

The big picture 10

Managers, investors, and entrepreneurs 10

External creditors 11

Government agencies 11

Business form generation 12

Reviewing the Common Financial Statements 12

The income statement 13

Balance sheet 16

Statement of cash flows 19

Other accounting statements 22

Putting it all together 23

The Philosophy of Accounting 25

Revenue principle 25

Expense principle 25

Matching principle 26

Cost principle 26

Objectivity principle 26

Continuity assumption 27

Unit-of-measure assumption 27

Separate-entity assumption 28

A Few Words about Tax Accounting 28

Chapter 2: Double-Entry Bookkeeping 29

The Fiddle-Faddle Method of Accounting 30

How Double-Entry Bookkeeping Works 33

The accounting model 33

Talking mechanics 35

Almost a Real-Life Example 39

Recording rent expense 39

Recording wages expense 39

Recording supplies expense 40

Recording sales revenue 40

Recording cost of goods sold 41

Recording the payoff of accounts payable 41

Recording the payoff of a loan 42

Calculating account balance 42

Using T-account analysis results 44

A Few Words about How QuickBooks Works 46

Chapter 3: Special Accounting Problems 49

Working with Accounts Receivable 50

Recording a sale 50

Recording a payment 50

Estimating bad-debt expense 51

Removing uncollectible accounts receivable 52

Recording Accounts Payable Transactions 53

Recording a bill 54

Paying a bill 54

Taking some other accounts payable pointers 55

Inventory Accounting 55

Dealing with obsolete inventory 56

Disposing of obsolete inventory 57

Dealing with inventory shrinkage 58

Accounting for Fixed Assets 59

Purchasing a fixed asset 60

Dealing with depreciation 60

Disposing of a fixed asset 62

Recognizing Liabilities 63

Borrowing money 64

Making a loan payment 64

Accruing liabilities 65

Closing Out Revenue and Expense Accounts 68

The traditional close 68

The QuickBooks close 70

One More Thing 71

Book 2: Getting Ready to Use QuickBooks 73

Chapter 1: Setting Up QuickBooks 75

Planning Your New QuickBooks System 75

What accounting does 75

What accounting systems do 76

What QuickBooks does 76

And now for the bad news 77

Installing QuickBooks 78

Dealing with the Presetup Jitters 79

Preparing for setup 79

Seeing what happens during setup 81

Running the QuickBooks Setup Wizard 81

Getting the big welcome 81

Supplying company information 82

Customizing QuickBooks 83

Setting your start date 84

Reviewing the suggested chart of accounts 86

Adding your information to the company file 87

Identifying the Starting Trial Balance 89

A simple example to start 89

A real-life example to finish 91

Chapter 2: Loading the Master File Lists 93

Setting Up the Chart of Accounts List 94

Setting Up the Item List 98

Working with the Price Level List 99

Using Sales Tax Codes 100

Setting Up a Payroll Item List 100

Setting Up Classes 101

Setting Up a Customer List 103

Setting Up the Vendor List 107

Setting Up a Fixed Assets List 111

Setting Up a Price Level List 112

Setting Up a Billing Rate Level List 112

Setting Up Your Employees 113

Setting Up an Other Names List 113

Setting Up the Profile Lists 114

Chapter 3: Fine-Tuning QuickBooks 117

Accessing the Preferences Settings 118

Setting the Accounting Preferences 120

Using account numbers 121

Setting general accounting options 121

Setting the Bills Preferences 123

Setting the Calendar Preferences 123

Setting the Checking Preferences 123

Changing the Desktop View 126

Setting Finance Charge Calculation Rules 128

Setting General Preferences 128

Controlling Integrated Applications 131

Controlling Inventory 132

Controlling How Jobs and Estimates Work 133

Dealing with Multiple Currencies 134

Starting Integrated Payment Processing 135

Controlling How Payroll Works 135

Telling QuickBooks How Reminders Should Work 137

Specifying Reports and Graphs Preferences 139

Setting Sales and Customers Preferences 142

Specifying How Sales Are Taxed 144

Setting the Search Preferences 145

Setting the Send Forms Preferences 146

Fine-Tuning the Service Connection 147

Controlling Spell Checking 148

Controlling How 1099 Tax Reporting Works 149

Setting Time and Expenses Preferences 149

Book 3: Bookkeeping Chores 151

Chapter 1: Invoicing Customers 153

Choosing an Invoice Form 153

Customizing an Invoice Form 154

Choosing a template to customize 154

Reviewing the Additional Customization options 154

Moving on to basic customization 159

Working with the Layout Designer tool 161

Working with the web-based Forms Customization tool 164

Invoicing a Customer 164

Billing for Time 170

Using a weekly time sheet 171

Timing single activities 172

Including billable time on an invoice 173

Printing Invoices 175

Emailing Invoices 176

Recording Sales Receipts 177

Recording Credit Memos 179

Receiving Customer Payments 181

Assessing Finance Charges 183

Setting up finance-charge rules 184

Calculating finance charges 185

Using Odds and Ends on the Customers Menu 186

Chapter 2: Paying Vendors 189

Creating a Purchase Order 189

Creating a real purchase order 190

Using some purchase order tips and tricks 193

Recording the Receipt of Items 193

Simultaneously Recording the Receipt and the Bill 196

Entering a Bill 198

If you haven’t previously recorded an item receipt 198

If you have previously recorded an item receipt 200

Paying Bills 202

Reviewing the Other Vendor Menu Commands 205

Vendor Center window 205

Sales Tax menu commands 206

Inventory Activities menu commands 207

Print/E-file 1099s commands 207

Item List command 208

Chapter 3: Tracking Inventory and Items 209

Looking at Your Item List 210

Using the Item Code column 210

Using the Item List window 210

Using inventory reports 211

Adding Items to the Item List 212

Adding an item: Basic steps 213

Adding a service item 214

Adding an inventory part 215

Adding a noninventory part 217

Adding an other-charge item 217

Adding a subtotal item 220

Adding a group item 221

Adding a discount item 221

Adding a payment item 223

Adding a sales tax item 223

Setting up a sales tax group 224

Adding custom fields to items 226

Editing Items 227

Adjusting physical counts and inventory values 228

Adjusting prices and price levels 231

Using the Change Item Prices command 231

Using price levels 231

Enabling advanced pricing 233

Managing Inventory in a Manufacturing Firm 234

Handling manufactured inventory the simple way 235

Performing inventory accounting in QuickBooks 235

Managing multiple inventory locations 239

Chapter 4: Managing Cash and Bank Accounts 241

Writing Checks 242

Recording and printing a check 242

Customizing the check form 247

Making Bank Deposits 249

Transferring Money between Bank Accounts 253

Working with the Register 254

Recording register transactions 254

Using Register window commands and buttons 258

Using the Edit Menu Commands 261

Reconciling the Bank Account 266

Reviewing the Other Banking Commands 270

Order Checks & Envelopes command 270

Enter Credit Card Charges command 270

Bank Feeds command 271

Loan Manager command 272

Other Names list 272

Chapter 5: Paying Employees 273

Setting Up Payroll 273

Signing up for a payroll service 275

Setting up employees 275

Setting up year-to-date amounts 279

Checking your payroll setup data 280

Scheduling Payroll Runs 280

Paying Employees 280

Editing and Voiding Paychecks 282

Paying Payroll Liabilities 283

Book 4: Accounting Chores 285

Chapter 1: For Accountants Only 287

Working with QuickBooks Journal Entries 287

Recording a journal entry 288

Reversing a journal entry 289

Editing journal entries 290

Updating Company Information 290

Working with Memorized Transactions 290

Reviewing the Accountant and Taxes Reports 291

Creating an Accountant’s Copy of the QuickBooks Data File 293

Creating an accountant’s copy 294

Handling the accountant’s copy manually 294

Sending the accountant’s copy electronically 297

Using an accountant’s copy 298

Reusing an accountant’s copy 298

Exporting client changes 298

Importing accountant’s changes 299

Canceling accountant’s changes 300

Troubleshooting accountant’s copy transfers 301

Using the Client Data Review Commands 301

Chapter 2: Preparing Financial Statements and Reports 303

Some Wise Words Up Front 304

Producing a Report 304

Working with the Report Window 305

Working with Report window buttons 305

Using the Report window controls 312

Modifying a Report 314

Using the Display tab 314

Using the Filters tab 316

Using the Header/Footer tab 318

Formatting fonts and numbers 319

Processing Multiple Reports 321

A Few Words about Document Retention 322

Chapter 3: Preparing a Budget 325

Reviewing Common Budgeting Tactics 325

Top-line budgeting 326

Zero-based budgeting 326

Benchmarking 327

Putting it all together 328

Taking a Practical Approach to Budgeting 329

Using the Set Up Budgets Window 329

Creating a new budget 329

Working with an existing budget 331

Managing with a Budget 333

Some Wrap-Up Comments on Budgeting 335

Chapter 4: Using Activity-Based Costing 337

Reviewing Traditional Overhead Allocation 338

Understanding How ABC Works 340

The ABC product-line income statement 340

ABC in a small firm 344

Implementing a Simple ABC System 345

Seeing How QuickBooks Supports ABC 346

Turning On Class Tracking 347

Using Classes for ABC 348

Setting up your classes 348

Classifying revenue amounts 349

Classifying expense amounts 349

Making after-the-fact classifications 351

Producing ABC reports 352

Chapter 5: Setting Up Project and Job Costing Systems 353

Setting Up a QuickBooks Job 353

Tracking Job or Project Costs 356

Job Cost Reporting 359

Using Job Estimates 360

Progress Billing 361

Book 5: Financial Management 365

Chapter 1: Ratio Analysis 367

Some Caveats about Ratio Analysis 368

Liquidity Ratios 369

Current ratio 369

Acid-test ratio 370

Leverage Ratios 371

Debt ratio 371

Debt equity ratio 372

Times interest earned ratio 372

Fixed-charges coverage ratio 373

Activity Ratios 375

Inventory turnover ratio 376

Days of inventory ratio 376

Average collection period ratio 377

Fixed-asset turnover ratio 378

Total-assets turnover ratio 379

Profitability Ratios 379

Gross margin percentage 380

Operating income/sales 380

Profit margin percentage 381

Return on assets 381

Return on equity 382

Chapter 2: Economic Value Added Analysis 385

Introducing the Logic of EVA 385

Seeing EVA in Action 386

An example of EVA 388

Another example of EVA 388

Reviewing Some Important Points about EVA 389

Using EVA When Your Business Has Debt 391

The first example of the modified EVA formula 391

Another EVA with debt example 393

Presenting Two Final Pointers 395

And Now, a Word to My Critics 396

Chapter 3: Capital Budgeting in a Nutshell 399

Introducing the Theory of Capital Budgeting 399

The big thing is the return 400

One little thing is maturity 400

Another little thing is risk 401

The bottom line 401

Calculating the Rate of Return on Capital 402

Calculating the investment amount 403

Estimating the net cash flows 403

Calculating the return 408

Measuring Liquidity 412

Thinking about Risk 413

What Does All This Have to Do with QuickBooks? 414

Book 6: Business Plans 415

Chapter 1: Profit-Volume-Cost Analysis 417

Seeing How Profit-Volume-Cost Analysis Works 418

Calculating Break-Even Points 420

Using Real QuickBooks Data for Profit-Volume-Cost Analysis 422

Sales revenue 422

Gross margin percentage 422

Fixed costs 424

Recognizing the Downside of the Profit-Volume-Cost Model 424

Using the Profit-Volume-Cost Analysis Workbook 426

Collecting your inputs 426

Understanding the Break-Even Analysis Forecast 430

Understanding the Profit-Volume Forecast 431

Looking at the profit-volume-cost charts 433

Chapter 2: Creating a Business Plan Forecast 437

Reviewing Financial Statements and Ratios 438

Using the Business Plan Workbook 439

Understanding the Workbook Calculations 446

Forecasting inputs 446

Balance Sheet 446

Common Size Balance Sheet 454

Income Statement 455

Common Size Income Statement 459

Cash Flow Statement 460

Financial Ratios Table 467

Customizing the Starter Workbook 472

Changing the number of periods 473

Performing ratio analysis on existing financial statements 473

Calculating taxes for a current net loss before taxes 473

Combining this workbook with other workbooks 474

Chapter 3: Writing a Business Plan 475

What the Term “Business Plan” Means 475

A Few Words about Strategic Plans 476

Cost strategies 476

Differentiated products or services strategies 477

Focus strategies 477

Look, Ma: No Strategy 478

Two comments about tactics 479

Six final strategy pointers 479

A White-Paper Business Plan 480

A New-Venture Plan 483

Is the new venture’s product or service feasible? 483

Does the market want the product or service? 484

Can the product or service be profitably sold? 485

Is the return on the venture adequate for prospective investors? 485

Can existing management run the business? 486

Some final thoughts 487

Book 7: Care and Maintenance 489

Chapter 1: Administering QuickBooks 491

Keeping Your Data Confidential 491

Using Windows security 492

Using QuickBooks security 492

Using QuickBooks in a Multiuser Environment 494

Setting up additional QuickBooks users 494

Changing user rights in Enterprise Solutions 500

Changing user rights in QuickBooks Pro and Premier 502

Using Audit Trails 504

Enabling Simultaneous Multiuser Access 505

Maintaining Good Accounting Controls 506

Chapter 2: Protecting Your Data 511

Backing Up the QuickBooks Data File 511

Backing-up basics 512

What about online backup? 515

Some backup tactics 516

Restoring a QuickBooks Data File 517

Condensing the QuickBooks Company Files 521

Cleanup basics 522

Some cleanup and archiving strategies 527

Chapter 3: Troubleshooting 529

Using the QuickBooks Help File and This Book 529

Browsing Intuit’s Product-Support Website 531

Checking Another Vendor’s Product-Support Website 533

Tapping into Intuit’s Online and Expert Communities 533

When All Else Fails 534

Book 8: Appendixes 535

Appendix A: A Crash Course in Excel 537

Starting Excel 537

Stopping Excel 538

Explaining Excel’s Workbooks 538

Putting Text, Numbers, and Formulas in Cells 539

Writing Formulas 540

Scrolling through Big Workbooks 541

Copying and Cutting Cell Contents 542

Copying cell contents 542

Moving cell contents 543

Moving and copying formulas 543

Formatting Cell Contents 544

Recognizing That Functions Are Simply Formulas 546

Saving and Opening Workbooks 549

Saving a workbook 549

Opening a workbook 550

Printing Excel Workbooks 551

One Other Thing to Know 552

Appendix B: Government Web Resources for Businesses 553

Bureau of Economic Analysis 553

Finding information at the BEA website 554

Downloading a BEA publication 554

Uncompressing a BEA publication 556

Using a BEA publication 556

Bureau of Labor Statistics 557

Finding information at the BLS website 557

Using BLS information 558

Census Bureau 560

Finding information at the Census Bureau website 560

Using the Census Bureau’s publications 563

Using the Census Bureau’s search engine 563

Using the Census Bureau’s Subjects index 563

Securities and Exchange Commission 563

Finding information through EDGAR 564

Searching the EDGAR database 564

Federal Reserve 566

Finding information at the Federal Reserve website 566

Using the Federal Reserve website’s information 568

Government Publishing Office 568

Information available at the GPO website 568

Searching the GPO database 568

Internal Revenue Service 569

Appendix C: Glossary of Accounting and Financial Terms 571

Index 601

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