QuickBooks® 2005BibleDesktop Edition

Jill Gilbert, C.P.A., Attorney, Llm in Taxation

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QuickBooks®

2005Bible

Desktop Edition

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QuickBooks® 2005BibleDesktop Edition

Jill Gilbert, C.P.A., Attorney, Llm in Taxation

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For general information on our other products and services or to obtain technical support,please contact our Customer Care Department within the U.S. at (800) 762-2974, outside theU.S. at (317) 572-3993 or fax (317) 572-4002.Wiley also publishes its books in a variety of electronic formats. Some content that appears inprint may not be available in electronic books.

Library of Congress Cataloging-in-Publication Data:Gilbert, Jill.QuickBooks 2005 bible desktop edition / Jill Gilbert.

p. cm.Includes bibliographical references and index.ISBN 0-7645-7107-9 (pbk.)1. QuickBooks. 2. Small business--Accounting--Computer programs. I. Title. HF5679.G495 2004657'.9042'028553--dc22

2004028289

Trademarks: Wiley, the Wiley Publishing logo and related trade dress are trademarks orregistered trademarks of John Wiley & Sons, Inc. and/or its affiliates, in the United States andother countries, and may not be used without written permission. QuickBooks is a registeredtrademark of Intuit, Inc. All other trademarks are the property of their respective owners.Wiley Publishing, Inc., is not associated with any product or vendor mentioned in this book.

QuickBooks® 2005 Bible, Desktop EditionPublished byWiley Publishing, Inc.10475 Crosspoint BoulevardIndianapolis, IN 46256www.wiley.comCopyright © 2005 by Wiley Publishing, Inc., Indianapolis, IndianaPublished simultaneously in CanadaISBN: 0-7645-7107-9Manufactured in the United States of America10 9 8 7 6 5 4 3 2 11B/SR/QR/QV/INNo part of this publication may be reproduced, stored in a retrieval system or transmitted in any form or by any means, electronic, mechanical, photocopying, recording, scanning orotherwise, except as permitted under Sections 107 or 108 of the 1976 United States CopyrightAct, without either the prior written permission of the Publisher, or authorization throughpayment of the appropriate per-copy fee to the Copyright Clearance Center, 222 RosewoodDrive, Danvers, MA 01923, (978) 750-8400, fax (978) 646-8600. Requests to the Publisher forpermission should be addressed to the Legal Department, Wiley Publishing, Inc., 10475Crosspoint Blvd., Indianapolis, IN 46256, (317) 572-3447, fax (317) 572-4355, e-mail:brandreview@wiley.com.

LIMIT OF LIABILITY/DISCLAIMER OF WARRANTY: THE PUBLISHER AND THE AUTHORMAKE NO REPRESENTATIONS OR WARRANTIES WITH RESPECT TO THE ACCURACY ORCOMPLETENESS OF THE CONTENTS OF THIS WORK AND SPECIFICALLY DISCLAIM ALLWARRANTIES, INCLUDING WITHOUT LIMITATION WARRANTIES OF FITNESS FOR A PAR-TICULAR PURPOSE. NO WARRANTY MAY BE CREATED OR EXTENDED BY SALES OR PRO-MOTIONAL MATERIALS. THE ADVICE AND STRATEGIES CONTAINED HEREIN MAY NOT BESUITABLE FOR EVERY SITUATION. THIS WORK IS SOLD WITH THE UNDERSTANDING THATTHE PUBLISHER IS NOT ENGAGED IN RENDERING LEGAL, ACCOUNTING, OR OTHER PRO-FESSIONAL SERVICES. IF PROFESSIONAL ASSISTANCE IS REQUIRED, THE SERVICES OF ACOMPETENT PROFESSIONAL PERSON SHOULD BE SOUGHT. NEITHER THE PUBLISHERNOR THE AUTHOR SHALL BE LIABLE FOR DAMAGES ARISING HEREFROM. THE FACT THATAN ORGANIZATION OR WEBSITE IS REFERRED TO IN THIS WORK AS A CITATION AND/ORA POTENTIAL SOURCE OF FURTHER INFORMATION DOES NOT MEAN THAT THE AUTHOROR THE PUBLISHER ENDORSES THE INFORMATION THE ORGANIZATION OR WEBSITE MAYPROVIDE OR RECOMMENDATIONS IT MAY MAKE. FURTHER, READERS SHOULD BE AWARETHAT INTERNET WEBSITES LISTED IN THIS WORK MAY HAVE CHANGED OR DISAP-PEARED BETWEEN WHEN THIS WORK WAS WRITTEN AND WHEN IT IS READ.

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www.wiley.com

About the AuthorJill Gilbert is both a certified public accountant and an experienced tax attorney. She also has a Masters Degree in Computer Science. Jill’s articleshave appeared in numerous professional and technical publications, as well as a popular community news column, “Tax Talks.” In addition, she teachescontinuing education classes for attorneys, accountants, and financial profes-sionals, and provides consulting and accounting services to small businesses.

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CreditsExecutive EditorKatie Mohr

Development EditorSusan Hobbs

Technical EditorChristine Dempster

Production EditorPamela Hanley

Production CoordinatorRyan Steffen

Copy EditorPublication Services

Editorial ManagerMary Beth Wakefield

Vice President & Executive Group PublisherRichard Swadley

Vice President and PublisherJoseph B. Wikert

Graphics and Production SpecialistsBeth BrooksCarrie A. FosterLauren Goddard Joyce HaugheyJennifer Heleine Lynsey OsbornHeather PopeHeather Ryan

Quality Control TechniciansJohn GreenoughLeeann HarveyJoe NiesenCarl Pierce

Proofreading and IndexingTECHBOOKS Production Services

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To my husband Dan and my little writing buddies, Tara, Julia, and Daniel

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Contents at a GlancePreface . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . xxviiAcknowledgments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . xxx

Part I: The QuickBooks System . . . . . . . . . . . . . . . . . . . . 1Chapter 1: Quick Insights and Program Overview . . . . . . . . . . . . . . . . . 3Chapter 2: Twenty Minutes to Navigating QuickBooks . . . . . . . . . . . . . 25Chapter 3: Choosing the Correct Legal Entity and Avoiding Tax Penalties . . 41Chapter 4: Accounting Basics for QuickBooks Companies . . . . . . . . . . . 53

Part II: Establishing Your Own QuickBooks Business . . . . . . . 71Chapter 5: Setting Up Your QuickBooks Company . . . . . . . . . . . . . . . . 73Chapter 6: Customizing Your Chart of Accounts . . . . . . . . . . . . . . . . . 89Chapter 7: Entering Historical Transactions and Data . . . . . . . . . . . . . 107Chapter 8: Using Lists . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 119Chapter 9: Working with Customers and Jobs . . . . . . . . . . . . . . . . . . 137Chapter 10: Using Items to Designate Products and Pricing . . . . . . . . . . 161

Part III: Preferences and Data Management. . . . . . . . . . . . 181Chapter 11: Printer Settings and Options . . . . . . . . . . . . . . . . . . . . 183Chapter 12: Setting QuickBooks Preferences . . . . . . . . . . . . . . . . . . 191Chapter 13: Data Management and Security . . . . . . . . . . . . . . . . . . . 205Chapter 14: Recording Sales Transactions and Creating Sales Forms . . . . 231Chapter 15: Customizing Sales Forms . . . . . . . . . . . . . . . . . . . . . . 255

Part IV: Managing Your Business with QuickBooks . . . . . . . . 275Chapter 16: Accounts Receivable and Deposits . . . . . . . . . . . . . . . . . 277Chapter 17: Purchase Orders and Accounts Payable . . . . . . . . . . . . . . 305Chapter 18: Working with Inventory . . . . . . . . . . . . . . . . . . . . . . . 325Chapter 19: Reviewing Registers and Reconciling Accounts . . . . . . . . . . 345Chapter 20: QuickBooks Pro: Estimates and Time Tracking . . . . . . . . . . 357

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Part IV: Payroll and Taxes . . . . . . . . . . . . . . . . . . . . . . 379Chapter 21: Payroll Taxes and Items . . . . . . . . . . . . . . . . . . . . . . . 381Chapter 22: Maintaining Employee Information and Keeping Your

List Up-to-Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 401Chapter 23: Sales Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 417Chapter 24: Tax Forms and Tax Payments . . . . . . . . . . . . . . . . . . . . 431Chapter 25: Check Writing and Expense Recording . . . . . . . . . . . . . . . 445

Part VI: Banking and Credit Card Transactions . . . . . . . . . . 459Chapter 26: Online Banking and Bill Payment . . . . . . . . . . . . . . . . . . 461Chapter 27: Recording Credit Card Transactions . . . . . . . . . . . . . . . . 471Chapter 28: Analyzing Your Company’s Profitability and Financial Strength . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 483Chapter 29: Accounting for Fixed Assets and Other Advanced

Balance Sheet Topics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 501Chapter 30: Reports and Graphs . . . . . . . . . . . . . . . . . . . . . . . . . 513Chapter 31: Budgets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 537Chapter 32: Dealing with the IRS . . . . . . . . . . . . . . . . . . . . . . . . . 547Chapter 33: Creating Binding Contracts with QuickBooks . . . . . . . . . . . 561

Part VII: Analyzing Business Performance . . . . . . . . . . . . . 573Appendix A: Your Rights as a Taxpayer. . . . . . . . . . . . . . . . . . . . . . 575Appendix B: How to Get Help with Unresolved Tax Problems . . . . . . . . . 579Appendix C: Protecting Taxpayers’ Rights . . . . . . . . . . . . . . . . . . . . 593Glossary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 597

Index . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 603

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ContentsPreface . . . . . . . . . . . . . . . . . . . . . . . . . . . . . xxvii

Acknowledgments . . . . . . . . . . . . . . . . . . . . . . . . xxx

Part I: The QuickBooks System 1

Chapter 1: Quick Insights and Program Overview . . . . . . 3QuickBooks Program Philosophy and Design . . . . . . . . . . . . 3The QuickBooks Chart of Accounts: The Starting Point . . . . . . 4

Service-based companies . . . . . . . . . . . . . . . . . . . . 4Product-based companies . . . . . . . . . . . . . . . . . . . 5

Retail companies . . . . . . . . . . . . . . . . . . . . . 5Manufacturing companies . . . . . . . . . . . . . . . . 5

Creating Your Chart of Accounts . . . . . . . . . . . . . . . . 6Registers: Tracking Your Asset and Liability Accounts . . . . . . . 7Organizing with Lists . . . . . . . . . . . . . . . . . . . . . . . . . . 8Indexing with Items . . . . . . . . . . . . . . . . . . . . . . . . . . 11Using Forms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13Time-Saving Features . . . . . . . . . . . . . . . . . . . . . . . . . 14

Quick Add . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14Quick Fill . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15Quick Recall . . . . . . . . . . . . . . . . . . . . . . . . . . . 15Quick Math . . . . . . . . . . . . . . . . . . . . . . . . . . . 15QuickBooks calculator . . . . . . . . . . . . . . . . . . . . . 16The Find function . . . . . . . . . . . . . . . . . . . . . . . . 17Memorized transactions . . . . . . . . . . . . . . . . . . . . 17

Reports and Graphs . . . . . . . . . . . . . . . . . . . . . . . . . 17Standard reports . . . . . . . . . . . . . . . . . . . . . . . . 18

The Profit and Loss Statement . . . . . . . . . . . . . 18The Balance Sheet . . . . . . . . . . . . . . . . . . . . 19The sales report by Item . . . . . . . . . . . . . . . . 19

Generating QuickReports . . . . . . . . . . . . . . . . . . . . . . 22Analyzing information with graphs . . . . . . . . . . . . . . 22

Budgeting with QuickBooks . . . . . . . . . . . . . . . . . . . . . 22Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23

Chapter 2: Twenty Minutes to Navigating QuickBooks . . . 25Opening the Sample Company File . . . . . . . . . . . . . . . . . 25QuickBooks Navigator . . . . . . . . . . . . . . . . . . . . . . . . 27

Navigating basics . . . . . . . . . . . . . . . . . . . . . . . . 27The Company Navigator . . . . . . . . . . . . . . . . 27The Customers Navigator . . . . . . . . . . . . . . . . 29

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The Vendors Navigator . . . . . . . . . . . . . . . . . 30The Employees Navigator . . . . . . . . . . . . . . . . 31The Banking Navigator . . . . . . . . . . . . . . . . . 32The Business Services Navigator . . . . . . . . . . . . 32

Getting Plenty of Help . . . . . . . . . . . . . . . . . . . . . . . . 35Standard Help . . . . . . . . . . . . . . . . . . . . . . . . . . 35QuickBooks Help & Support — Find an Answer . . . . . . . 35The QuickBooks Learning Center . . . . . . . . . . . . . . . 35

Entering a Transaction . . . . . . . . . . . . . . . . . . . . . . . . 37Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39

Chapter 3: Choosing the Correct Legal Entity andAvoiding Tax Penalties . . . . . . . . . . . . . . . . . . . . 41

Basic Types of Business Entities . . . . . . . . . . . . . . . . . . 41The sole proprietorship . . . . . . . . . . . . . . . . . . . . 43The partnership . . . . . . . . . . . . . . . . . . . . . . . . 44

Limited partnerships . . . . . . . . . . . . . . . . . . 45The corporation . . . . . . . . . . . . . . . . . . . . . . . . 45

S corporations . . . . . . . . . . . . . . . . . . . . . . 46The limited liability company . . . . . . . . . . . . . . 46

Federal Tax Identification Numbers . . . . . . . . . . . . . . . . . 46Tax Penalties for Late Filers and Nonfilers . . . . . . . . . . . . . 48Choosing a QuickBooks Start Date for Your Business Entity . . . 50A Checklist of Issues . . . . . . . . . . . . . . . . . . . . . . . . . 51Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52

Chapter 4: Accounting Basics for QuickBooks Companies . . . . . . . . . . . . . . . . . . . . . . . . . . . 53

A Matter of Principle: GAAP and Your Business . . . . . . . . . . 53All about Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . 54

Start with the Chart . . . . . . . . . . . . . . . . . . . . . . 54Types of accounts . . . . . . . . . . . . . . . . . . . . . . . 55

Income . . . . . . . . . . . . . . . . . . . . . . . . . . 55Expense . . . . . . . . . . . . . . . . . . . . . . . . . . 57Asset . . . . . . . . . . . . . . . . . . . . . . . . . . . 57Liability . . . . . . . . . . . . . . . . . . . . . . . . . . 58Retained earnings and equity . . . . . . . . . . . . . . 59Temporary versus permanent accounts:

A “close” call . . . . . . . . . . . . . . . . . . . . . 60Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . 61

Profit and Loss Statements . . . . . . . . . . . . . . . . . . 61Closing the books . . . . . . . . . . . . . . . . . . . . 62Viewing the Profit and Loss Statement . . . . . . . . . 63

The Balance Sheet . . . . . . . . . . . . . . . . . . . . . . . 65Journal Entries and T Accounts . . . . . . . . . . . . . . . . . . . 66Cash versus Accrual Accounting . . . . . . . . . . . . . . . . . . 68Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70

xii Contents

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Part II: Establishing Your OwnQuickBooks Business 71

Chapter 5: Setting Up Your QuickBooks Company . . . . . 73Simplifying Life with the EasyStep Interview . . . . . . . . . . . . 73

Why use the interview? . . . . . . . . . . . . . . . . . . . . 73Organization of the interview . . . . . . . . . . . . . . . . . 74Maneuvering within, exiting, and reentering

the interview . . . . . . . . . . . . . . . . . . . . . . . . . 75Completing the Welcome and

General Sections . . . . . . . . . . . . . . . . . . . . . . . . . . 76The Company Information section . . . . . . . . . . . . . . 76

Identifying your business by name . . . . . . . . . . . 76Fiscal year and tax identification number . . . . . . . 76Tax-reporting form . . . . . . . . . . . . . . . . . . . . 77Storing the interview information . . . . . . . . . . . 78Creating and previewing your Chart of Accounts . . . 78

Preferences for invoicing, sales tax, and other features . . . 80The Payroll Section . . . . . . . . . . . . . . . . . . . . . . . . . 81

Accounts payable . . . . . . . . . . . . . . . . . . . . 82Entering your company’s start date . . . . . . . . . . . . . 82

Making Decisions about Income and Expense . . . . . . . . . . . 83Entering Opening Balances for Existing Accounts . . . . . . . . . 85Bypassing the EasyStep Interview . . . . . . . . . . . . . . . . . 88Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 88

Chapter 6: Customizing Your Chart of Accounts . . . . . . . 89Creating and Maintaining Accounts . . . . . . . . . . . . . . . . . 89Automatically Created Accounts . . . . . . . . . . . . . . . . . . 90Adding and Deleting Accounts . . . . . . . . . . . . . . . . . . . . 91

Adding accounts . . . . . . . . . . . . . . . . . . . . . . . . 92Deleting accounts . . . . . . . . . . . . . . . . . . . . . . . 94

Making Accounts Inactive . . . . . . . . . . . . . . . . . . . . . . 95Numbering Accounts . . . . . . . . . . . . . . . . . . . . . . . . . 96

Activating Account Numbering . . . . . . . . . . . . . . . . 96Special Features to Help You Track Account Information . . . . . 97

Creating an audit trail . . . . . . . . . . . . . . . . . . . . . 97Viewing subaccount detail . . . . . . . . . . . . . . . . . . . 98Using the Class Tracking feature . . . . . . . . . . . . . . . 99

Editing Account Information and Opening Balances . . . . . . . 100Merging Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . 101Special Start-Up Issues for Accrual-Based Taxpayers . . . . . . 101

Uncategorized Income . . . . . . . . . . . . . . . . . . . . 102Adjusting the Uncategorized Income account . . . . 102Adjusting for uncategorized expenses . . . . . . . . 104

Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 105

Contents xiii

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Chapter 7: Entering Historical Transactions and Data . . . 107Record-Keeping Goals . . . . . . . . . . . . . . . . . . . . . . . . 107The Essential Order for Entering Data . . . . . . . . . . . . . . . 108A Checklist for Establishing Your Opening Balances . . . . . . . 109Entering Opening Balances with the EasyStep Interview . . . . 109Entering Past Customer Sales and Accounts Receivable . . . . 110Entering Past Accounts Payable (Vendor) Information . . . . . 113Entering Balance Sheet Account Opening Balances . . . . . . . 115

Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . 115Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 116Equity Accounts . . . . . . . . . . . . . . . . . . . . . . . . 117

Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 118

Chapter 8: Using Lists . . . . . . . . . . . . . . . . . . . . 119What Lists Are Available? . . . . . . . . . . . . . . . . . . . . . . 119Where Do List Entries Come From? . . . . . . . . . . . . . . . . 121Viewing Lists . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 121Adding Entries to a List . . . . . . . . . . . . . . . . . . . . . . . 122

General procedure for adding items to lists . . . . . . . . 122Adding a vendor . . . . . . . . . . . . . . . . . . . . 123Adding list entries as you go . . . . . . . . . . . . . 125

Customizing Fields . . . . . . . . . . . . . . . . . . . . . . . . . 126Creating custom fields for employees, vendors,

or customers . . . . . . . . . . . . . . . . . . . . . . . . 126Creating custom fields for Items . . . . . . . . . . . . . . . 127

Organizing Lists . . . . . . . . . . . . . . . . . . . . . . . . . . . 128Rearranging individual list entries . . . . . . . . . . . . . 129Sorting entire lists . . . . . . . . . . . . . . . . . . . . . . . 129Making list entries inactive . . . . . . . . . . . . . . . . . . 130

Finding List Entries in Transactions . . . . . . . . . . . . . . . . 131Merging List Entries . . . . . . . . . . . . . . . . . . . . . . . . . 132Deleting List Entries . . . . . . . . . . . . . . . . . . . . . . . . . 132Adding, Moving, and Removing Columns in a List . . . . . . . . 133Printing a List . . . . . . . . . . . . . . . . . . . . . . . . . . . . 133Displaying Different Views of Lists . . . . . . . . . . . . . . . . . 134Generating List Reports . . . . . . . . . . . . . . . . . . . . . . . 135Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 135

Chapter 9: Working with Customers and Jobs . . . . . . . 137Setting Up New Customers . . . . . . . . . . . . . . . . . . . . . 137

Creating a new customer record . . . . . . . . . . . . . . . 139Setting up jobs for a customer . . . . . . . . . . . . . . . . 142

Managing Your Customer:Job List . . . . . . . . . . . . . . . . . 143Changing customer or job information during

a transaction . . . . . . . . . . . . . . . . . . . . . . . . 143Changing customer or job information from the list . . . 144

Keeping Notes for a Customer or Job . . . . . . . . . . . . . . . 145Creating Transactions for Customers and Jobs . . . . . . . . . 146Working with Customer and Job Reports . . . . . . . . . . . . . 147

Reports for individual customers or jobs . . . . . . . . . . 147Reports for all customers/all jobs . . . . . . . . . . . . . . 149

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Writing Letters in Word Using QuickBooks Data . . . . . . . . . 153Accessing letter templates . . . . . . . . . . . . . . . . . . 154Creating the letters with the Letters and

Envelopes Wizard . . . . . . . . . . . . . . . . . . . . . 155Creating customer letters from scratch using

QuickBooks Pro . . . . . . . . . . . . . . . . . . . . . . 158Creating Customer Mailing Labels . . . . . . . . . . . . . . . . . 158

Setting up your printer for labels . . . . . . . . . . . . . . 159Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 160

Chapter 10: Using Items to Designate Products and Pricing . . . . . . . . . . . . . . . . . . . . . . . . . . 161

What Is an Item? . . . . . . . . . . . . . . . . . . . . . . . . . . . 161The Relationship of Accounts to Items . . . . . . . . . . . . . . 163Creating New Items . . . . . . . . . . . . . . . . . . . . . . . . . 164Creating New Items . . . . . . . . . . . . . . . . . . . . . . . . . 165

Creating a Service Item . . . . . . . . . . . . . . . . . . . . 165Creating an Inventory Item . . . . . . . . . . . . . . . . . . . . . 167Purchasing Items . . . . . . . . . . . . . . . . . . . . . . . . . . 169Partial Payments Items . . . . . . . . . . . . . . . . . . . . . . . 169Subtotal and Discount Items . . . . . . . . . . . . . . . . . . . . 171

Subtotal Items . . . . . . . . . . . . . . . . . . . . . . . . . 171Discount Items . . . . . . . . . . . . . . . . . . . . . . . . 172

Discounting a single Item . . . . . . . . . . . . . . . 172Discounting multiple Items . . . . . . . . . . . . . . . . . . 173

Sales Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 173Other Charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . 174Item Management Tools . . . . . . . . . . . . . . . . . . . . . . . 175

The Group type . . . . . . . . . . . . . . . . . . . . . . . . 175Using subitems . . . . . . . . . . . . . . . . . . . . . . . . 176Editing, deleting, and inactivating Items . . . . . . . . . . 177Searching for Items in a transaction . . . . . . . . . . . . . 177

Reports about Items . . . . . . . . . . . . . . . . . . . . . . . . . 178Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 179

Part III: Preferences and Data Management 181

Chapter 11: Printer Settings and Options . . . . . . . . . . 183Choosing a Default Printer . . . . . . . . . . . . . . . . . . . . . 183Setting Options to Print Forms . . . . . . . . . . . . . . . . . . . 184Printing Reports and Graphs in Color . . . . . . . . . . . . . . . 185Printing Batches of Checks, Invoices, or Other Forms . . . . . . 185Printing Labels . . . . . . . . . . . . . . . . . . . . . . . . . . . 186

Adding your logo to checks and paychecks . . . . . . . . 187Printing company or employee information on

the check voucher . . . . . . . . . . . . . . . . . . . . . 188The check printing process . . . . . . . . . . . . . . . . . 188

Common Printing Problems . . . . . . . . . . . . . . . . . . . . 189Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 190

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Chapter 12: Setting QuickBooks Preferences . . . . . . . 191Changing Preferences . . . . . . . . . . . . . . . . . . . . . . . . 191

Accessing Preferences . . . . . . . . . . . . . . . . . . . . 191What Preferences Does QuickBooks Offer? . . . . . . . . . . . . 192

Understanding Company Preferences versus My Preferences . . . . . . . . . . . . . . . . . . . . . . . 194

Changing a Preference . . . . . . . . . . . . . . . . . . . . 195Restoring defaults . . . . . . . . . . . . . . . . . . . . . . . 196

Reviewing Preference Options . . . . . . . . . . . . . . . . . . . 196Accounting Preferences . . . . . . . . . . . . . . . . . . . 196Checking Preferences . . . . . . . . . . . . . . . . . . . . . 197Finance charge Preferences . . . . . . . . . . . . . . . . . 198General Preferences . . . . . . . . . . . . . . . . . . . . . . 199Jobs & Estimates Preferences . . . . . . . . . . . . . . . . 199Payroll & Employees Preferences . . . . . . . . . . . . . . 200Reminders Preferences . . . . . . . . . . . . . . . . . . . . 201Sales & Customers Preferences . . . . . . . . . . . . . . . 201Sales Tax Preferences . . . . . . . . . . . . . . . . . . . . . 202Tax: 1099 Preferences . . . . . . . . . . . . . . . . . . . . . 202Time Tracking Preferences . . . . . . . . . . . . . . . . . . 202

Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 203

Chapter 13: Data Management and Security . . . . . . . . 205Backing Up Data . . . . . . . . . . . . . . . . . . . . . . . . . . . 205

Options for backing up your data . . . . . . . . . . . . . . 206Preparing to back up . . . . . . . . . . . . . . . . . . . . . 207

Determining space requirements for the backup . . . 207Scheduling regular backups of your data . . . . . . . . . . . . . 209

Creating a backup strategy . . . . . . . . . . . . . . . . . . 209Scheduling automatic backups . . . . . . . . . . . . . . . 209Scheduling regular backups . . . . . . . . . . . . . . . . . 210

Restoring Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . 211Restoring a local backup . . . . . . . . . . . . . . . . . . . 211Restoring data backed up with an online service . . . . . 212

Importing Data from Excel . . . . . . . . . . . . . . . . . . . . . 212Preparing Excel data for export . . . . . . . . . . . . . . . 213Mapping the data from your Excel file to QuickBooks . . . 218

Condensing Data . . . . . . . . . . . . . . . . . . . . . . . . . . . 220Managing Security . . . . . . . . . . . . . . . . . . . . . . . . . . 223

Reviewing the role of the Administrator . . . . . . . . . . 224Reviewing security options . . . . . . . . . . . . . . . . . 224Adding users to QuickBooks . . . . . . . . . . . . . . . . . 226

Multi-user mode . . . . . . . . . . . . . . . . . . . . 226Creating the Administrator ID and password . . . . 227

Steps for adding a QuickBooks user . . . . . . . . . . . . . 228Changing User Access and Deleting Users . . . . . . . . . 229Changing a password . . . . . . . . . . . . . . . . . . . . . 229

Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 229

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Chapter 14: Recording Sales Transactions and Creating Sales Forms . . . . . . . . . . . . . . . . . . . . 231

How QuickBooks Helps You with Each Customer Transaction Cycle . . . . . . . . . . . . . . . . . . . . . . . . 231

Creating estimates for customers . . . . . . . . . . . . . . 232Extending Credit to Customers: Invoices versus Statements . . . 235Creating Invoices . . . . . . . . . . . . . . . . . . . . . . . . . . 236

Editing customer and sales transactions . . . . . . . . . . 238Setting the correct invoice preferences . . . . . . . . . . . 238

Billing Clients with Statements . . . . . . . . . . . . . . . . . . . 239Entering statement charges . . . . . . . . . . . . . . . . . 239Creating and printing a customer statement . . . . . . . . 241Cash versus accrual accounting in sales transactions . . . 243

Recording and Tracking Customer Payments . . . . . . . . . . . 244Activating Sales Taxes . . . . . . . . . . . . . . . . . . . . . . . . 247Finance Charges . . . . . . . . . . . . . . . . . . . . . . . . . . . 249Recording Pending Sales and Packing Slips . . . . . . . . . . . . 250Tools for Managing and Editing Sales Forms . . . . . . . . . . . 252

Editing a cash sale . . . . . . . . . . . . . . . . . . . . . . 252Editing an Accounts Receivable transaction . . . . . . . . 252Deleting and voiding sales . . . . . . . . . . . . . . . . . . 253

Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 253

Chapter 15: Customizing Sales Forms . . . . . . . . . . . 255Why Customize Sales Forms? . . . . . . . . . . . . . . . . . . . 255Working with Template Files . . . . . . . . . . . . . . . . . . . . 258

Opening a template for editing and accessing the Customize Template options . . . . . . . . . . . . . 258

Opening a template from the sales form . . . . . . . 258Using the Customize dialog box . . . . . . . . . . . . 259Opening a template from the Templates list . . . . . 259

Creating a new template . . . . . . . . . . . . . . . . . . . 260Creating a new template from the sales form . . . . . 260Creating a new template from the Templates list . . . 261

Using the Customize Dialog Box . . . . . . . . . . . . . . . . . . 261Choosing header fields . . . . . . . . . . . . . . . . . . . . 262Choosing other fields at the top of the form . . . . . . . . 263Setting the column layout . . . . . . . . . . . . . . . . . . 264Choosing footer fields . . . . . . . . . . . . . . . . . . . . 264

Company Tab . . . . . . . . . . . . . . . . . . . . . . 265Selecting Different Fonts . . . . . . . . . . . . . . . . . . . . . . 266

Setting up your printer . . . . . . . . . . . . . . . . . . . . 267Adding a Logo . . . . . . . . . . . . . . . . . . . . . . . . . . . . 267Previewing Your Changes . . . . . . . . . . . . . . . . . . . . . . 269Using the Layout Designer . . . . . . . . . . . . . . . . . . . . . 269

Moving and resizing boxes . . . . . . . . . . . . . . . . . . 270Making several boxes the same size . . . . . . . . . . . . 271Setting object properties . . . . . . . . . . . . . . . . . . . 271

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Setting page margins . . . . . . . . . . . . . . . . . . . . . 272Fitting addresses for use with window envelopes . . . . . 273Zooming in and out . . . . . . . . . . . . . . . . . . . . . . 273Adjusting the grid sensitivity . . . . . . . . . . . . . . . . 273

Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 274

Part IV: Managing Your Business with QuickBooks 275

Chapter 16: Accounts Receivable and Deposits . . . . . . 277Receiving Payments . . . . . . . . . . . . . . . . . . . . . . . . . 277

Correcting misapplied or incorrect payments . . . . . . . 279Entering a discount for early payment . . . . . . . . . . . 280

Setting up payment terms . . . . . . . . . . . . . . . 281Applying an early-payment discount . . . . . . . . . 282

Assessing finance charges for late payments . . . . . . . . 283Processing a Refund or Return . . . . . . . . . . . . . . . . . . . 285

Applying customer credits to an invoice . . . . . . . . . . 287Editing or deleting a credit memo . . . . . . . . . . . . . . 288Handling overpayments, down payments,

and prepayments . . . . . . . . . . . . . . . . . . . . . 288Handling a Bounced Check . . . . . . . . . . . . . . . . . . . . . 289

Set up QuickBooks to track bad checks . . . . . . . . . . 290Recording bank charges for a bounced check . . . . . . . 290Recording a credit memo to back out the original

sale and write off a bad debt . . . . . . . . . . . . . . . 291Recharging the customer and applying

a bad-check charge . . . . . . . . . . . . . . . . . . . . 291Making Deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . 292

Depositing money from sales . . . . . . . . . . . . . . . . 292Depositing other money . . . . . . . . . . . . . . . . . . . 294Editing or deleting a deposit . . . . . . . . . . . . . . . . . 294

Generating Deposit Reports . . . . . . . . . . . . . . . . . . . . 295Printing a Deposit Summary . . . . . . . . . . . . . . . . . 295Creating a Deposit Detail report . . . . . . . . . . . . . . . 296

Aging Accounts Receivable . . . . . . . . . . . . . . . . . . . . . 297Viewing Accounts Receivable reports . . . . . . . . . . . 297Taking action on overdue accounts . . . . . . . . . . . . . 299

Use the QuickBooks Write Letters feature . . . . . . 300Screen out bad customers . . . . . . . . . . . . . . . 300Negotiate partial payments . . . . . . . . . . . . . . 301Courts and collection agencies . . . . . . . . . . . . 301Improving your future collection ratio . . . . . . . . 302

Handling Barter (Noncash) Payments . . . . . . . . . . . . . . . 302Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 303

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Chapter 17: Purchase Orders and Accounts Payable . . . . 305Tools for Tracking Expenses . . . . . . . . . . . . . . . . . . . . 305Entering Purchase Orders . . . . . . . . . . . . . . . . . . . . . 306

Customizing purchase orders . . . . . . . . . . . . . . . . 308Entering Bills . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 309

Entering a bill for Items from a purchase order . . . . . . 310Entering a bill without an associated PO . . . . . . . . . . 312Receiving and paying for Items at the same time . . . . . 313Receiving Items that arrive ahead of the bill . . . . . . . . 313

Recording the Items . . . . . . . . . . . . . . . . . . 313Entering the bill when you receive it . . . . . . . . . . . . 314Receiving Items that arrive with a bill . . . . . . . . . . . 315Billing a customer for a charge . . . . . . . . . . . . . . . 315

Working with Memorized Bills . . . . . . . . . . . . . . . . . . . 317Memorizing a bill . . . . . . . . . . . . . . . . . . . . . . . 318Recalling a memorized bill . . . . . . . . . . . . . . . . . . 319

Paying Bills and Taking Discounts . . . . . . . . . . . . . . . . . 319Paying a bill . . . . . . . . . . . . . . . . . . . . . . . . . . 319

Editing Payments . . . . . . . . . . . . . . . . . . . . . . . . . . 321Deleting Bills and Payments . . . . . . . . . . . . . . . . . . . . 321Receiving Credits from Vendors . . . . . . . . . . . . . . . . . . 322Reviewing Accounts Payable Reports . . . . . . . . . . . . . . . 323Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 324

Chapter 18: Working with Inventory . . . . . . . . . . . . 325The Definition of Inventory . . . . . . . . . . . . . . . . . . . . . 325What Types of Inventory Does QuickBooks Track? . . . . . . . 326Inventory Accounts . . . . . . . . . . . . . . . . . . . . . . . . . 326

Inventory asset accounts . . . . . . . . . . . . . . . . . . . 327Expense account: Cost of Goods Sold . . . . . . . . . . . . 328

Income accounts . . . . . . . . . . . . . . . . . . . . 328Using the QuickBooks Inventory Tracking Features . . . . . . . 329

Creating a new Item . . . . . . . . . . . . . . . . . . . . . . 329Activating inventory preferences . . . . . . . . . . . . . . 330Overview of automatic inventory-tracking features . . . . 331

Inventory Valuation . . . . . . . . . . . . . . . . . . . . . . . . . 332Receiving Inventory . . . . . . . . . . . . . . . . . . . . . . . . . 333

Scenario #1: Paying for goods at the time of receipt . . . . 333Scenario #2: You receive the goods and get a bill later . . . 336Scenario #3: You pay for goods you have not received . . . 337

Adjustments to Inventory . . . . . . . . . . . . . . . . . . . . . . 337General Journal entries . . . . . . . . . . . . . . . . . . . . 338

A review of debits and credits . . . . . . . . . . . . . 338Entering an adjustment in the General Journal . . . 339The Quantity/Value On Hand window . . . . . . . . 340

Accounting for Returned Items . . . . . . . . . . . . . . . . . . . 341Inventory Reports . . . . . . . . . . . . . . . . . . . . . . . . . . 342Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 343

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Chapter 19: Reviewing Registers and Reconciling Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . 345

What’s in a Register? . . . . . . . . . . . . . . . . . . . . . . . . 345Viewing the Accounts Receivable register for

the company . . . . . . . . . . . . . . . . . . . . . . . . 346Locating a specific transaction in the company’s

Accounts Receivable register . . . . . . . . . . . . . . . 347Viewing the Accounts Receivable register for a

particular customer or job . . . . . . . . . . . . . . . . 348Scrolling through a register . . . . . . . . . . . . . . . . . 349Creating a QuickReport . . . . . . . . . . . . . . . . . . . . 349Printing from a register . . . . . . . . . . . . . . . . . . . . 350Entering and changing transactions . . . . . . . . . . . . . 351

New transactions . . . . . . . . . . . . . . . . . . . . 352Editing previously entered transactions . . . . . . . 352

Moving, Voiding, and Deleting Transactions . . . . . . . . . . . 352Moving a register entry . . . . . . . . . . . . . . . . . . . . 353Voiding and deleting transactions . . . . . . . . . . . . . . 353

Reconciling Your Check Register . . . . . . . . . . . . . . . . . . 354Reconciling Your Checking Account . . . . . . . . . . . . . . . . 354If Opening Balances Are Not the Same . . . . . . . . . . . . . . 355Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 356

Chapter 20: QuickBooks Pro: Estimates and Time Tracking . . . . . . . . . . . . . . . . . . . . . . . . 357

Developing Estimates . . . . . . . . . . . . . . . . . . . . . . . . 357Customizing estimates . . . . . . . . . . . . . . . . . . . . 359Creating multiple estimates for a single customer . . . . . 360

Creating an Invoice from an Estimate . . . . . . . . . . . . . . . 361Creating a progress invoice from an estimate . . . . . . . 361Determining whether invoices have been created . . . . . 364

Checking Your Actual Job Cost against the Estimate . . . . . . 365Tracking Employee Time . . . . . . . . . . . . . . . . . . . . . . 366

QuickBooks Pro options for tracking time . . . . . . . . . 366Two ways to track time . . . . . . . . . . . . . . . . . . . . 367

Entering single activities . . . . . . . . . . . . . . . . 368Using the internal stopwatch feature . . . . . . . . . 369Filling out weekly timesheets . . . . . . . . . . . . . 369

Using the QuickBooks Pro Timer . . . . . . . . . . . . . . . . . . 371Overview: Using Timer for the first time . . . . . . . . . . 371

Exporting lists for Timer from QuickBooks Pro . . . 372Setting up the Timer file and importing

information . . . . . . . . . . . . . . . . . . . . . . 372Charging Billable Time and Costs to Invoices . . . . . . . . . . 373Viewing Time-Tracking Reports . . . . . . . . . . . . . . . . . . 374Working in Multi-User Mode . . . . . . . . . . . . . . . . . . . . 375

Switching to multi-user mode . . . . . . . . . . . . . . . . 375Setting up new users . . . . . . . . . . . . . . . . . . . . . 376

Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 376

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Part V: Payroll and Taxes 379

Chapter 21: Payroll Taxes and Items . . . . . . . . . . . . 381Payroll Decisions You Must Make at the Outset . . . . . . . . . 381Setting Up Payroll and Employee Preferences . . . . . . . . . . 383Who Is an Employee? . . . . . . . . . . . . . . . . . . . . . . . . 384Federal Taxation Overview . . . . . . . . . . . . . . . . . . . . . 385

W-4 form . . . . . . . . . . . . . . . . . . . . . . . . . . . . 386W-2 forms and 1099 forms . . . . . . . . . . . . . . . . . . 386W-5 forms . . . . . . . . . . . . . . . . . . . . . . . . . . . 386Forms 940 and 941 . . . . . . . . . . . . . . . . . . . . . . 386

Payroll Item Lists and Item Types . . . . . . . . . . . . . . . . . 387Setting Up Wage Items . . . . . . . . . . . . . . . . . . . . . . . . 388State and Local Payroll Tax Items . . . . . . . . . . . . . . . . . 390

State payroll taxes . . . . . . . . . . . . . . . . . . . . . . 390Local Tax Items . . . . . . . . . . . . . . . . . . . . . . . . 391State disability insurance . . . . . . . . . . . . . . . . . . 392

Payroll Deduction Items . . . . . . . . . . . . . . . . . . . . . . 393Payroll Addition Items . . . . . . . . . . . . . . . . . . . . . . . 394Company Contribution Items . . . . . . . . . . . . . . . . . . . . 395Commission Items . . . . . . . . . . . . . . . . . . . . . . . . . . 396Editing, Deleting, and Making Payroll Items Inactive . . . . . . . 397QuickBooks Payroll Services Available for an Additional Fee . . . 399Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 400

Chapter 22: Maintaining Employee Information and Keeping Your Employee List Up-to-Date . . . . . . . . 401

Employees versus Independent Contractors . . . . . . . . . . . 401Adding an employee . . . . . . . . . . . . . . . . . . . . . 402

Employee Defaults . . . . . . . . . . . . . . . . . . . . . . . . . . 405Setting up tax defaults . . . . . . . . . . . . . . . . . . . . . 405Setting up defaults for benefits and other adjustments . . . 407Setting up sick and vacation time employee defaults . . . . 407Setting up wage and salary defaults . . . . . . . . . . . . . 408

Entering Information for Individual Employees . . . . . . . . . . 409Entering basic payroll data for one employee . . . . . . . 410Entering taxes for an individual employee . . . . . . . . . 410Entering sick and vacation time for one employee . . . . 411Entering individualized payroll adjustments . . . . . . . . 411

Entering Year-to-Date Payroll Information . . . . . . . . . . . . 412Entering year-to-date information . . . . . . . . . . . . . . 412

Maintaining the Employee List . . . . . . . . . . . . . . . . . . . 413Editing and deleting employees . . . . . . . . . . . . . . . 413Making an employee inactive . . . . . . . . . . . . . . . . 414Keeping notes about employees . . . . . . . . . . . . . . . 414

Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 415

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Chapter 23: Sales Taxes . . . . . . . . . . . . . . . . . . . 417Accounting for Sales Taxes . . . . . . . . . . . . . . . . . . . . . 417Setting Sales Tax Preferences . . . . . . . . . . . . . . . . . . . . 418Sales Tax Items . . . . . . . . . . . . . . . . . . . . . . . . . . . . 420

Setting up single Items . . . . . . . . . . . . . . . . . . . . 421Creating Sales Tax Group Items . . . . . . . . . . . . . . . 421

Charging Your Customers . . . . . . . . . . . . . . . . . . . . . . 423Taxable versus nontaxable customers . . . . . . . . . . . 423Designating Items as taxable or nontaxable . . . . . . . . 424Calculating tax on sales forms . . . . . . . . . . . . . . . . 425Items with different tax rates on the same invoice . . . . 426

Viewing Your Sales Tax Liability . . . . . . . . . . . . . . . . . . 426Sales Tax Liability Reports . . . . . . . . . . . . . . . . . . 426Sales Tax Payable registers . . . . . . . . . . . . . . . . . 427

Paying Your Sales Tax Obligations . . . . . . . . . . . . . . . . . 428Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 429

Chapter 24: Tax Forms and Tax Payments . . . . . . . . . 431Associating Account Totals with Income Tax Forms . . . . . . . 431Generating Income Tax Reports and Summaries . . . . . . . . . 432Payroll Tax Forms . . . . . . . . . . . . . . . . . . . . . . . . . . 434

W-2 and W-3 forms . . . . . . . . . . . . . . . . . . . . . . 434Reviewing W-2 forms . . . . . . . . . . . . . . . . . . 435Printing W-2 forms . . . . . . . . . . . . . . . . . . . 437

Form 941 (Employer’s Quarterly Federal Tax Return) . . . 437Viewing your Form 941 . . . . . . . . . . . . . . . . . 437

Editing your Form 941 . . . . . . . . . . . . . . . . . . . . 439Data you cannot edit . . . . . . . . . . . . . . . . . . . . . 439Form 940 (Employer’s Federal Income Tax Return) . . . . 439

1099 Misc Forms . . . . . . . . . . . . . . . . . . . . . . . . . . . 440Reviewing and printing 1099 forms . . . . . . . . . . . . . 441

Paying Payroll Tax Liabilities . . . . . . . . . . . . . . . . . . . . 441Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 443

Chapter 25: Check Writing and Expense Recording . . . . 445Setting Up Check Preferences . . . . . . . . . . . . . . . . . . . 445Writing Checks . . . . . . . . . . . . . . . . . . . . . . . . . . . . 447

Steps for writing a check . . . . . . . . . . . . . . . . . . . 447Entering the basic information . . . . . . . . . . . . 447Specifying the payee . . . . . . . . . . . . . . . . . . 449Entering expense detail . . . . . . . . . . . . . . . . 450Entering Item detail . . . . . . . . . . . . . . . . . . . 452

Editing Checking Transactions . . . . . . . . . . . . . . . . . . . 454Voiding and Deleting Check Transactions . . . . . . . . . . . . . 455Printing Checks . . . . . . . . . . . . . . . . . . . . . . . . . . . 455Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 457

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Part VI: Banking and Credit Card Transactions 459

Chapter 26: Online Banking and Bill Payment . . . . . . . 461Introducing Online Banking . . . . . . . . . . . . . . . . . . . . . 461

Using online banking . . . . . . . . . . . . . . . . . . . . . 462Getting set up for online banking . . . . . . . . . . . . . . 462Applying for online banking . . . . . . . . . . . . . . . . . 462

Transactions Online versus Traditional Banking . . . . . . . . . 464Downloading Online Banking Transactions . . . . . . . . . . . . 465Account Reconciliation and Reports . . . . . . . . . . . . . . . 467

Matching downloaded transactions to your register . . . 468Correcting a mismatched or missing entry . . . . . . . . . 468

Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 469

Chapter 27: Recording Credit Card Transactions . . . . . . 471Creating a Credit Card Account . . . . . . . . . . . . . . . . . . 471Entering Credit Card Transactions . . . . . . . . . . . . . . . . . 474

Entering the basic credit card transaction information . . 474Specifying where the card was used . . . . . . . . . . . . 476Entering the amount, type, and reference number . . . . 477Assigning expense to specific accounts . . . . . . . . . . 477Entering Item detail . . . . . . . . . . . . . . . . . . . . . . 478Finishing the credit card transaction . . . . . . . . . . . . 479

Changing or Deleting a Credit Card Transaction . . . . . . . . . 480Changing a credit card transaction . . . . . . . . . . . . . 480Voiding a credit card transaction . . . . . . . . . . . . . . 481Deleting a credit card transaction . . . . . . . . . . . . . . 481

Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 481

Chapter 28: Analyzing Your Company’s Profitability and Financial Strength . . . . . . . . . . . . . . . . . . . 483

Using Classes to Track Income-Producing Activities . . . . . . . 483What are classes? . . . . . . . . . . . . . . . . . . . . . . . 484Profitability of categories of types of clients or jobs . . . 484Activating the preference option . . . . . . . . . . . . . . 484Setting up classes . . . . . . . . . . . . . . . . . . . . . . . 485Assigning classes to Items on employee paychecks . . . . 487Tracking classes on sales forms, registers, and

purchase orders . . . . . . . . . . . . . . . . . . . . . . 489Reported information by class . . . . . . . . . . . . . . . . 490

Analyzing Information by Jobs . . . . . . . . . . . . . . . . . . . 492Ratios to Live By . . . . . . . . . . . . . . . . . . . . . . . . . . . 493

Working capital: How much money do you have to run your business? . . . . . . . . . . . . . . . . . . . . 494

How is your company’s cash flow? . . . . . . . . . . . . . 496Your company’s current ratio . . . . . . . . . . . . . . . . 497

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The turnover ratio: How well are your company’s products selling? . . . . . . . . . . . . . . . . . . . . . . 498

Debt-to-equity ratio: Does your business have too much debt? . . . . . . . . . . . . . . . . . . . . . . . . . 498

Return on investment: Is the business profitable? . . . . . 499IRS Hobby Loss Rules . . . . . . . . . . . . . . . . . . . . . . . . 499Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 500

Chapter 29: Accounting for Fixed Assets and Other Advanced Balance Sheet Topics . . . . . . . . . . . . . . 501

Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 501Accounting for fixed assets and depreciation . . . . . . . 502Setting up fixed-asset, cost, and depreciation accounts . . . 502Setting up an account for accumulated depreciation . . . 504Acquiring fixed assets after the QuickBooks start date . . . 505Recording depreciation expense . . . . . . . . . . . . . . 506Selling a fixed asset . . . . . . . . . . . . . . . . . . . . . . 507

Accounting for Borrowed Funds . . . . . . . . . . . . . . . . . . 508Recording Capital Contributions . . . . . . . . . . . . . . . . . . 510Recording Distributions to Owners . . . . . . . . . . . . . . . . 511Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 512

Chapter 30: Reports and Graphs . . . . . . . . . . . . . . 513A Tour of Reports . . . . . . . . . . . . . . . . . . . . . . . . . . 513

The standard reports submenus . . . . . . . . . . . . . . 513Reports that help you track and manage employees . . . 519Banking and reconciliation reports . . . . . . . . . . . . . 519Jobs, time, and mileage reports . . . . . . . . . . . . . . . 520Accountant and taxes . . . . . . . . . . . . . . . . . . . . . 521Budgets . . . . . . . . . . . . . . . . . . . . . . . . . . . . 522Lists . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 522

Generating QuickReports . . . . . . . . . . . . . . . . . . . . . . 523Report terminology . . . . . . . . . . . . . . . . . . . . . . 524

Report and Graph Preferences . . . . . . . . . . . . . . . . . . . 524Refreshing information on reports and graphs . . . . . . 525Cash versus accrual . . . . . . . . . . . . . . . . . . . . . 525Aging options . . . . . . . . . . . . . . . . . . . . . . . . . 526The Modify Reports window . . . . . . . . . . . . . . . . . 526

The Report Button Bar . . . . . . . . . . . . . . . . . . . . . . . 528Memorizing and Recalling Reports . . . . . . . . . . . . . 530

Zooming In on Reports and Graphs . . . . . . . . . . . . . . . . 532Integration with Microsoft Excel . . . . . . . . . . . . . . . . . . 533The Graph QuickZoom Function . . . . . . . . . . . . . . . . . 534Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 535

Chapter 31: Budgets . . . . . . . . . . . . . . . . . . . . . 537Setting Up Your Budget and Defining Your Goals . . . . . . . . . 537Creating a Budget . . . . . . . . . . . . . . . . . . . . . . . . . . 537

Creating budgets from scratch . . . . . . . . . . . . . . . . 539Budgeting for a Customer:Job . . . . . . . . . . . . . . . . 540Budgeting by class . . . . . . . . . . . . . . . . . . . . . . 541

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Budget Reports . . . . . . . . . . . . . . . . . . . . . . . . . . . 542Creating reports from budgets . . . . . . . . . . . . . . . . 542

If You Were Overambitious: Changing a Budget . . . . . . . . . 544Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 545

Chapter 32: Dealing with the IRS . . . . . . . . . . . . . . 547How the IRS Is Set Up . . . . . . . . . . . . . . . . . . . . . . . . 547The IRS Taxpayer Advocate Service . . . . . . . . . . . . . . . . 548

Contacting TAS . . . . . . . . . . . . . . . . . . . . . . . . 548Taxpayer rights . . . . . . . . . . . . . . . . . . . . . . . . 548

Income Tax Return Audits . . . . . . . . . . . . . . . . . . . . . 549The screening process . . . . . . . . . . . . . . . . . . . . 549Which returns are most likely to be audited? . . . . . . . 550Tips for avoiding income tax audits . . . . . . . . . . . . . 551Types of income tax audits . . . . . . . . . . . . . . . . . . 552

Correspondence audits . . . . . . . . . . . . . . . . 552The office audit . . . . . . . . . . . . . . . . . . . . . 552Field audits . . . . . . . . . . . . . . . . . . . . . . . 552

Responding to a notice . . . . . . . . . . . . . . . . . . . . 553Decide on representation . . . . . . . . . . . . . . . 553Marshal your documentation . . . . . . . . . . . . . 553Exercise your rights . . . . . . . . . . . . . . . . . . 554

Tips for Handling Your Own Audit . . . . . . . . . . . . . . . . 554Payroll Tax Notices . . . . . . . . . . . . . . . . . . . . . . . . . 555

The payroll tax deposit match game . . . . . . . . . . . . 555Tips on avoiding payroll tax notices . . . . . . . . . . . . 555Responding to a payroll tax notice . . . . . . . . . . . . . 556Challenging payroll tax penalties . . . . . . . . . . . . . . 558

Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 559

Chapter 33: Creating Binding Contracts with QuickBooks . . . . . . . . . . . . . . . . . . . . . . . . . 561

What Is a Contract? . . . . . . . . . . . . . . . . . . . . . . . . . 561Elements of an express contract . . . . . . . . . . . . . . . 562

Offer and acceptance . . . . . . . . . . . . . . . . . . 562The element of consideration . . . . . . . . . . . . . 562

Implied contracts . . . . . . . . . . . . . . . . . . . . . . . 562Sales of Goods under the Uniform Commercial Code . . . . . . 563

What contracts are covered by the UCC? . . . . . . . . . . 563The battle of the forms . . . . . . . . . . . . . . . . . . . . 563Modifying UCC terms . . . . . . . . . . . . . . . . . . . . . 565

The Statute of Frauds . . . . . . . . . . . . . . . . . . . . . . . . 565Using QuickBooks to Avoid Disputes over Contract Terms . . . 566

Disputes arising over sales of goods . . . . . . . . . . . . 566Disputed service contracts . . . . . . . . . . . . . . . . . 567

When a Contract’s Very Existence Is Challenged . . . . . . . . . 569Damaged Goods and Incorrectly Filled Orders . . . . . . . . . . 570Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 571

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Part VII: Analyzing Business Performance 573

Appendix A: Your Rights as a Taxpayer . . . . . . . . . . . 575

Appendix B: How to Get Help with Unresolved Tax Problems . . . . . . . . . . . . . . . . . . . . . . . . . 579

Appendix C: Protecting Taxpayers’ Rights. . . . . . . . . . 593

Glossary . . . . . . . . . . . . . . . . . . . . . . . . . . . . 597

Index . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 603

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Preface

Welcome to QuickBooks 2005 Bible — a comprehensive source that dis-closes pretty much everything you need to know about QuickBooks.Most QuickBooks users concur it’s helpful to be told how to perform anaccounting function — but it’s invaluable when someone also reminds youwhen and why to perform it, particularly if you’re not a seasoned accountant.And if you are an accounting maven, this book is also written with you in mind.It provides legal analysis and coverage of advanced features

Why This Book Is Essential to Your BusinessMost entrepreneurs don’t give it much thought, but as your business (or anybusiness) grows, it faces three issues unrelated to producing the goods andservices it sells. This inevitable trilogy of headaches includes legal, accounting,and marketing decisions. If your small business is like most, you probably can-not afford to call on expensive professionals whenever you’d like. You need to beable to handle as many of these issues as possible on your own. And besides,many business issues are so interrelated that they defy attempts at delegation.This book recognizes that QuickBooks is not used in a vacuum; everyone in asmall business environment needs to know a little bit about what everyoneelse does. And if you are the owner, you need an aerial view of all the issues.

QuickBooks XP Bible is designed to give you valuable background in theaccounting and legal concepts that help you optimize the value of the software.For example, you may not be inclined to go to the library to research the differ-ent types of business entities, or have the funds to hire a professional advisorat the start. But QuickBooks asks you to enter your choice of business entity atthe outset, and you need enough background to take a decent stab at the ques-tion. QuickBooks XP Bible comes to your rescue in this and similar scenarios.

Who Should Read This BookEvery book makes some assumptions about its readers. You might be inter-ested in knowing what I’ve assumed about you:

✦ You are familiar with Windows and Windows-based software programs,and you understand how to perform such basic operations as openingfiles and maneuvering through them.

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✦ Although you may not be the owner of the business, you have somesort of personal stake in its ongoing health and financial vitality, evenif that stake extends only as far as your own job. Hence, the repeatedreferences to “your” company or “your” business.

✦ The purchasers of this book, as a group, have widely varying levelsof familiarity with accounting concepts. Some have never heard theterm balance sheet, whereas others have spent a good part of theirlives producing and analyzing them. This book is intended to givebackground information to the novice and added insight to theexpert.

✦ Everyone reading this book has a competent tax advisor, even if thatadvisor is yourself. Federal and state taxation are areas that requireyears of study to attain a level of competence. This book can’t makeyou a tax expert if you aren’t one already, but it will identify the issuesto raise with your tax advisor (or for you to think about if you are one).

✦ You are buying this book because you want to learn about accountingconcepts relevant to your business, not about accounting in general.For example, if you are a restaurant doing a cash trade, you don’twant to have to wade through a chapter on accounts receivable — ithas no relevance to your business or your life. In fact, I don’t think asingle person out there actually intends to read this book cover tocover. Taking that into account, each chapter is written as a stand-alone reference source. I try to give information to you on a need-to-know basis. In instances where you do need some background fromanother chapter, cross references direct you to the information.

Helpful IconsThis book uses four types of icons as visual cues to annotate the contents ofthe text:

You’ll see this icon any time an accounting term is introduced that mightnot be familiar to a layperson. Generally, the concept also is defined in theglossary at the end of the book.

This icon warns you when to watch out or when to take particular carewhen performing a procedure.

Most people won’t read this book cover to cover, but will instead zero in onthe chapter or information they need. This icon tells you that information rel-evant to the topic you’re reading about is located elsewhere in the book.

This icon offers an aside or extra information about a topic.

This is perhaps the most important icon. It signals the kind of informationthat saves you time, money, and aggravation.

AccountingJargon

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