QuickBooks is an accounting software program that allows you to track your business' income and expenses. One of the benefits of using QuickBooks is having access to key financial reports (such as profit and loss) so that you can see the overall health of your business at any time. Having access to these reports makes filing your taxes a lot easier. QuickBooks has been around for almost three decades, and it is the accounting software used by millions of small businesses around the globe.

QuickBooks comes in two formats: software that you can install or download on a desktop computer, and a cloud-based program that you can access from any mobile device or desktop computer with an internet connection.

The cloud-based version, QuickBooks Online (QBO), is available in four editions: Simple Start, Essentials, Plus, and Advanced. The desktop version, QuickBooks Desktop (QBD), also comes in four editions: QuickBooks Mac, Pro, Premier, and Enterprise. We will discuss each of these in detail next.

QuickBooks Online (QBO) comes in four editions:

• Simple Start
• Essentials
• Plus
• Advanced

Each edition varies in terms of the price, the number of users to which you can give access, and the features included.

The following table gives a summary of QBO pricing and features for each edition of QBO:

As you can see from the preceding table, all four editions of QBO include the following features:

• Track income and expenses: Keep track of all sales to customers and expenses paid to vendors.
• Connect bank and credit card accounts: Connect all business bank and credit cards to QBO so transactions automatically download into the software.
• Manage accounts receivable: Invoice customers, enter payments, and stay on top of unpaid invoices.
• Accept online payments: Allow customers to pay their invoices online with a debit/credit card or by wire transfer.
• Send estimates: Create a quote or proposal and email it to prospective clients for approval.
• Track sales tax: Keep track of sales tax collected from customers, submit electronic payments to state and local authorities, and complete required sales tax forms and filings.
• Maximum number of users: With the exception of the Advanced plan, which includes three accountant users, each plan includes two accountant users, plus one or more additional users. For example, you can give a bookkeeper and your certified public accountant (CPA) access to your data.
• Capture and organize receipts: Use your phone or mobile device to snap a photo of a receipt and upload it to QuickBooks. You can also link expense receipts to transactions.
• Mileage tracking: Automatically track miles with your phone's GPS and categorize them as business or personal trips.

The Simple Start plan is the most economical, at $20 per month. It includes one user and two accountants.  The Essentials plan is the next tier and starts at $25 per month. It includes three users and two accountants. Unlike Simple Start, you can track accounts payable (A/P) with the Essentials plan. The Plus plan is $70 per month. It includes five users and two accountants. Unlike the Simple Start and Essentials plans, you can track your inventory with the Plus plan.  The Advanced plan is the top-tier QBO plan. It starts at $150 per month and includes up to 25 users and 3 accountant users.

We will discuss the features of each plan in more detail, and how to choose the right QuickBooks Online version for you, in the next section.

QuickBooks Online is ideal for solopreneurs, freelancers, and mid-to-large-sized businesses with employees and 1099 contractors. 1099 contractors are also known as independent contractors, who you may hire to provide services for your business. Since they are not employees of the business, you must provide a 1099 form at the end of the year to any contractor you have paid $600 or more to in the calendar year.

The needs of your business will determine which edition of QBO is ideal for you. The following provides some additional insight into the ideal businesses for each edition of QBO.

QBO Simple Start is ideal for a freelancer or sole proprietor that sells services only, and no products. You may have employees that you need to pay or 1099 contractors. The majority of your expenses are paid via online banking or wire transfer, so you don't need to write or print checks to pay bills.

Similar to QBO Simple Start, QBO Essentials is ideal for freelancers and sole proprietors that only sell services and no products. You have employees but you do not hire contractors. Unlike QBO Simple Start, you pay most of your bills by writing checks, and you need the ability to keep track of your unpaid bills, also referred to as accounts payable (A/P).

Unlike QBO Simple Start and QBO Essentials, QBO Plus is ideal for small businesses that sell products, since it includes inventory tracking. Similar to QBO Simple Start and QBO Essentials, you can pay employees. QBO Plus also allows you to keep track of payments made to 1099 contractors so that you can complete the required 1099 reporting at the end of the year.

QBO Advanced is ideal for businesses that have more than five users needing access to their data. QBO Advanced is QBO Plus on steroids: it includes all of the features found in QBO Plus, along with some great bonus features, such as on-demand online training for your entire team, and Smart Reporting with Fathom.

The bonus features that you will find in QBO Advanced are as follows:

• Dedicated account team: With a QBO Advanced subscription, you will have access to a team of experts who will learn how your business works in order to answer your questions. They will also provide additional resources that will help you to better manage your business financials.
• QuickBooks training for staff: With QBO Advanced, on-demand online training videos help you and your staff get up to speed on how to use QBO. This training has an annual value of $2,000.
• Smart Reporting with Fathom: With this reporting feature, you can measure profitability, cash flow, and other key performance indicators (KPIs). This feature is not available in any other QBO edition.
• Batch invoices & expenses: Allows you to enter, edit, and email hundreds of invoices, checks, expenses, and bills instead of entering them one by one. 
• Custom user permissions: Provides a deeper level of user permissions that allows you to manage access to sensitive data, such as bank accounts.

For more in-depth information about the features and benefits of QBO Advanced, head over to Chapter 2, QuickBooks Online Advanced. In that chapter, we take a deep dive into all of the features available in the top-tier QBO plan.

Depending on your business and individual circumstances, you should now be able to determine whether you will need QBO Simple Start, Essentials, Plus, or Advanced. It is important to pick the right version for you so that you have access to the appropriate features you will need. Next, we will provide a brief overview of the QuickBooks Desktop product line.

QuickBooks Desktop (QBD) comes in four editions:

• Mac
• Pro
• Premier
• Enterprise

Each edition varies in terms of the price, the number of users to which you can give access, and the features included.

The following table provides a summary of the cost and features included in each edition of QBD:

As you can see from the preceding table, all four editions of QBD include the following features:

• Track income and expenses: Keep track of all sales to customers and expenses paid to vendor suppliers.
• Connect bank and credit card accounts: Connect all business bank and credit cards to QBO so transactions automatically download to the software.
• Manage accounts receivable: Invoice customers, enter payments, and stay on top of unpaid invoices.
• Manage accounts payable: Track unpaid bills, and pay them by check or through online banking before they are due.
• Accept online payments: Allow customers to pay their invoices online with debit/credit card, or through Automated Clearing House (ACH).
• Send estimates: Create a quote or proposal, and email it to prospective clients for approval.
• Track sales tax: Keep track of sales tax collected from customers, submit electronic payments to state and local authorities, and complete required state tax forms and filings.
• Give other users access: Give other users—such as a bookkeeper or an accountant—access to your data.
• Time tracking: Track hours worked by employees and contractors, so you can easily bill customers for completed work.
• Inventory tracking: Track inventory costs and quantities, using the average cost inventory method.
• Pay 1099 contractors: Keep track of payments made to independent contractors, and file the required tax forms at the end of the year.

QuickBooks Mac and Pro versions are priced at $299.95 and are identical when it comes to the features included. If your business falls into one of five industries (nonprofit, manufacturing and wholesale, professional services, contractor, or retail), you should consider choosing QuickBooks Premier, which starts at $499.95.  Finally, if your business has extensive inventory requirements, QuickBooks Enterprise includes mobile inventory barcode scanning and the Enhanced Pick, Pack, and Ship feature that none of the other editions offer.

You now have a better understanding of the QBD product line. This information will go a long way to help you determine which desktop version is right for your business. In the next section, we will go into more detail about what is included in the four QBD versions.

QBD is ideal for small-to-large-sized businesses that sell products or services, have employees and contractors, and are looking for a robust desktop accounting solution. If you have a Mac, QuickBooks for Mac is going to work best for you. For small businesses that use a PC or a Windows computer, you've got three versions to choose from: QuickBooks Pro, Premier, or Enterprise. Let's look at these in more detail.

QuickBooks Mac is ideal for any sized business on an iOS platform that has less than $1 million in annual revenue and doesn't need to give more than three users access to QuickBooks. When it comes to the features included, QuickBooks Mac is almost identical to QuickBooks Pro. You can connect your bank accounts, invoice customers, and pay bills, just like you can in the Pro, Premier, and Enterprise versions. Unfortunately, QuickBooks Mac does not come in industry-specific versions like QuickBooks Premier and Enterprise do.

For 2021, QuickBooks Mac has added a number of new features that you won't find in QuickBooks Pro, Premier, or Enterprise: 

Listed below are the new and improved features included in QuickBooks Mac 2021:

• Automatic Payment Reminders – set reminders for customers when their invoices are due
• Statement e-Payments – send statements with payment links
• Combined Invoice Emails – send multiple invoices to customers in a single email 
• Sales Tax Codes – track sales using specific sales tax codes for out of state, non-profit, and so on
• E-File 1099s – electronic filing of 1099 forms
• Email Templates – save and store multiple email templates
• Credit/Debit Card Refunds – refund merchant credits from within a Credit Memo transaction
• Company File Search – easily find and open company files
• Restore Backup Workflow – a simple to use restore company files wizard

QuickBooks Pro is ideal for a business of any size that is on a Windows platform, has less than $1 million in annual revenue, and does not need more than three user licenses. It includes all of the features found in QuickBooks Mac, plus it includes more than 100 customizable reports. You can also track hours worked by employees and contractors, to bill back customers as work is completed. Unfortunately, QuickBooks Pro does not come in industry-specific versions like the QuickBooks Premier and Enterprise versions do.

QuickBooks Premier is ideal for small-to-medium-sized businesses that fall into one of the following industries:

• Nonprofit
• Manufacturing and wholesale
• Professional services
• Contractor
• Retail

Unlike QuickBooks Mac and Pro, QuickBooks Premier includes a customized chart of accounts, a custom products and services list, and reports customized for businesses that fall into the industries listed above. QuickBooks Premier also allows you to purchase up to five user licenses, and it includes a forecasting tool.

QuickBooks Enterprise is the top-tier QBD plan. It includes all of the features you will find in QuickBooks Premier, plus a number of bonus ones.

QuickBooks Enterprise includes the following additional features:

• Up to 30 user licenses: You can purchase up to a maximum of 30 user licenses for multiuser access.
• Granular user access permissions: Includes more restrictive user permissions than other versions of QuickBooks.
• Mobile inventory barcode scanning: Prioritizes sales orders to fulfill, creates customer picklists across multiple warehouses, and sends this information to a barcode scanner.
• Enhanced Pick, Pack, and Ship: Sends items to a picker or packer with just one click. Plus, you can fill out and print shipping labels for major carriers directly from QuickBooks. For additional information, visit Intuit.com.

You should now have a better understanding of the differences between QuickBooks Mac, Pro, Premier, and Enterprise. This information should help you decide which desktop edition is right for your business. In the next section, we will provide details on the new features available in QBD.

Each year, there are improvements and new features added to the QBD product line. Here is a summary of the new features available in QBD 2021.

The new QBD 2021 features included in QuickBooks Pro, Premier, and Enterprise are as follows:

• Improved Bank Feeds: Improvements have been made to allow you to quickly auto categorize and batch-editing. There's more flexibility and efficiency with bank rules and you are able to quickly review and resolve discrepancies.
• Customer Groups: This new feature allows you to create customer groups based on a set of rules. You can manage communications with specific groups and add a new customer using select criteria and the customer group will update automatically.
• Payment Reminders: This new feature is also known as automated statements.  Create an automatic reminder to send recurring statements out on a specific day or date every month or as often as necessary. Create reminders for specific customer groups based on a set criteria.
• Customize Payment Receipts: A new template is available that allows you to customize customer payment receipts. You can add your company logo, add color, and select from various receipt formats.
• Improved Email Invoice and Attachment Preview: This feature was introduced in 2020 and has been improved to ensure confidence that the correct documents are attached to an email before you send it out. 
• Improved QuickBooks Desktop Manager: This tool makes it easy to find and install all of your owned QuickBooks Desktop software assets. This is ideal for accounting professionals that may need to install an older version of QuickBooks. This is also helpful to a small business looking for license details and a download link. You can access this tool by using this link: https://downloads.quickbooks.com/app/qbdt/products
• Improved QuickBooks Tool Hub: This is a resource center where you can obtain answers to fix common issues related to installation, file, network, and password issues. Click on https://quickbooks.intuit.com/learn-support/ and search for Tool Hub or QuickBooks Desktop Tool Hub.
• Improved Simplified Employee Payroll Setup: This is a guided payroll setup with an option to invite employees to set up their personal information such as home address, W4 tax withholding, and direct deposit details. Business owners can approve the information supplied by the employee and import it into QuickBooks.
• Improved Auto Matching of Merchant Payments: This tool has been improved to better match merchant payments to invoices so users can focus on specific transactions that need attention. Faster funding of credit card payments is also included.
• Improved QuickBooks Capital Funding: Business owners can access transparent, flexible business funding from within their QuickBooks file. There are no origination fees, prepayment penalties, or hidden charges.  From within your QuickBooks file, click on the Banking menu and select Get Financing.

In addition to the features and improvements noted above, QuickBooks Desktop Enterprise 21.0 includes the following additional improvements/new features:

• Data Level Permissions: This new feature adds functionality to customer and vendor groups.
• Batch Delete Sales Orders: This new feature allows you to void/delete unlinked sales orders. 
• Bar Code Label Prices: This new feature automatically includes an item's default sales price on printed barcode labels. This supplements the item name and description and helps to improve the shopping experience for customers by giving them visibility of the item's sale price.
• Improved Alternate Vendors on Reports: Alternate vendors can now be included in inventory reports. 
• Improved Landed Cost Controls: Landed costs increase the cost of recorded inventory items to include shipping, freight, duties, and other similar costs. There is now an option to allocate landed costs in closed periods. 
• Improved Required Lot/Serial Numbers: This feature has been improved to allow you to globally set the preference to require the lot/serial number selection on all transactions, or you can set the lot/serial number to be mandatory on selected items only.

Now that we have a better understanding of the new features and improvements included in the QBO and the QBD product lines, we're going to dive into a few bookkeeping basics. While you don't need an accounting degree or a bookkeeping background to use QuickBooks, you should be familiar with some basic bookkeeping terminology and key concepts.

If you are an aspiring accountant, the concepts that we will cover in this section will be familiar to you. However, if you are brand new to bookkeeping, make sure you grab a notepad to take notes, and a cup of coffee to stay alert. In this section, we will discuss the following: money coming into your business; money going out of your business; inventory and fixed asset purchases; the money you owe (liabilities); how to properly track everything using the chart of accounts; the two accounting methods; and double-entry bookkeeping.

One of the benefits of using QuickBooks to manage your books is that you don't need an accounting degree to learn how to use the software. However, you should have a basic understanding of how bookkeeping works and of what's happening behind the scenes in QuickBooks when you record transactions. As we walk through how to record transactions in QuickBooks, we will also explain what is happening behind the scenes, to further deepen your understanding of bookkeeping.

The main areas of your business include the following:

• Money in (sales)
• Money out (expenses)
• Inventory and fixed asset purchases
• Liabilities
• Chart of accounts
• Accounting methods
• Double-entry bookkeeping

Let's discuss each of these areas in more detail.

Every business generates sales by either selling products, services, or a combination of the two. For example, a freelance photographer provides photography services for weddings, graduations, and other special events. A retailer that sells custom T-shirts in various sizes and colors provides a product to generate sales.

In general, there are two types of sales: cash sales and credit sales. The primary difference between the two is in terms of when you receive payment from your customer. Cash sales are sales that require payment at the time a product is sold or services have been provided. For example, let's say a customer walks into a T-shirt shop and buys a T-shirt. This sale would be considered a cash sale because the sale of the T-shirt and payment by the customer takes place at the same time.

Credit sales are the opposite of cash sales because the sale and the payment by the customer take place at separate intervals. For example, let's say the freelance photographer spends four hours at a wedding and sends their customer a bill a few days later. This is considered a credit sale because payment will take place sometime in the future after services have been rendered.

For bookkeeping purposes, credit sales are recorded as accounts receivable. Accounts receivable, also referred to as A/R, is the money that is owed to you by customers. We will talk more about how to keep track of your A/R balances later on.

Now that you understand sales, let's take a look at expenses. 

The majority of the money that flows out of a business is used to pay for business expenses. Business expenses can be categorized as recurring or non-recurring. A recurring expense is one that repeats, such as rent, utilities, and insurance.

A non-recurring expense is one that is unexpected or takes place less frequently. For example, if a photographer's camera stops working and they need to spend money to get it repaired or buy a new one, this would be considered a non-recurring expense because it was unexpected.

QuickBooks is designed to help you easily track both recurring and non-recurring expenses. In this book, we will cover how to create recurring transactions in QuickBooks so that you don't have to manually enter them each time they occur. Plus, you will learn how to pay non-recurring transactions by writing a check, making online payments, or paying with a credit or debit card.

Now that you know how to keep track of money coming into your business and money going out of your business, let's see how you should handle inventory and fixed asset purchases next.

To keep track of all the costs and quantities for each item that you purchase, you would create a purchase order and send it to your vendor supplier to place an order. When you receive the goods, you would record them in your inventory. As you sell products to customers, you will record the sale in QuickBooks so that your inventory, cost, and quantities can be adjusted in real time.

If you purchase computers, printers, or other equipment for your business, these items are called fixed assets. When you record these items in QuickBooks, they will be categorized as fixed assets. Fixed assets should be depreciated over their useful life.

Many people think that liabilities are expenses, but they are not. A liability can be described as a loan you have with a financial institution or money that you owe to vendor suppliers, which is also called A/P. The primary difference between expenses and liabilities is that if you were to go out of business tomorrow, you would no longer have to pay expenses. Instead, you would stop making payments for utilities, and you would lay off employees to eliminate payroll expenses.

On the other hand, if you go out of business, you still have to pay your outstanding liabilities. They don't just disappear as expenses do. For example, if you have an outstanding loan with a bank, you still owe that money and will have to contact the financial institution to make payment arrangements. The same would apply to unpaid bills for products and/or services you received. This means you would have to contact the vendor/supplier and notify them you were going out of business in order to make payment arrangements.

The chart of accounts is a systematic way of categorizing financial business transactions. Every transaction for your business can be categorized into one of five primary categories: Income, Expenses, Assets, Liabilities, and Owner's Equity.

Here is a brief description of each category, with an example:

• Income: Proceeds from the sale of products, such as T-shirts, or services such as photography or consulting services.
• Expenses: Payments made to maintain daily business operations. This includes, but is not limited to, rent, utilities, payroll, and office supplies.
• Assets: Assets are items that your business owns. For example, the money in your business checking account is an asset, and the inventory that you have on hand is an asset.
• Liabilities: As discussed, liabilities consist of money that you owe to creditors. This includes loans, lines of credit, and the money owed to vendor suppliers (for example, A/P).
• Owner's Equity: Equity is everything the owner has invested in the business. For example, any money that you invest in your business is equity.

When setting up your QuickBooks company account, you don't have to worry about creating a chart of accounts from scratch. Instead, QuickBooks will create a default chart of accounts, based on the industry your business falls into.

One of the key decisions you need to make when setting up your books is which accounting method you will use. There are two accounting methods to choose from: cash-basis accounting, and accrual accounting. The primary difference between the two accounting methods is the point when you record sales and purchase transactions in your books.

Cash-basis accounting involves recording sales and purchases when cash changes hands. Let's say a photographer is not paid right away for most of their jobs, but instead, they send an invoice to the customer that includes a payment due date. Until the photographer receives payment in cash, or by check or credit card, they do not count the photography services as income under the cash-basis accounting method.

Accrual accounting involves recording sales as soon as you have shipped the products to your customer, or have provided services. Going back to our photographer example, the photographer would count the services they provided as income once they completed taking pictures, regardless of when the customer actually pays for the services.

In general, most small business owners will start out using the cash-basis accounting method. However, according to the Internal Revenue Service (IRS), there are certain types of businesses that are not allowed to use this method of accounting.  

The following businesses should never use cash-basis accounting:

• Businesses that carry an inventory
• C-corporations (regular corporations)
• Businesses with gross annual sales that exceed $5 million

One of the benefits of using QuickBooks is, regardless of which accounting method you choose, it does not change how you record transactions. As a matter of fact, you can start recording transactions in QuickBooks and decide later on which method you will use. This is because, at anytime, you can run reports for either method (cash or accrual). QuickBooks will determine which transactions belong on the report based on the accounting method chosen.

You may have heard the term double-entry accounting/bookkeeping. This means that, for every financial transaction that you record, there are at least two entries—a debit and a credit. This ensures that both sides of the accounting equation always remain in balance.

The accounting equation is as follows:

Assets = Liabilities + Owner's Equity

Let's look at the following example.

Let's say a T-shirt owner goes out and purchases $100 of T-shirts from a supplier. They don't pay for the T-shirts right away, but the supplier will send a bill later on. For this transaction, inventory increases by $100 and liabilities increase by $100. Since both assets and liabilities increased, our books remain in balance.

The impact of this transaction on the accounting equation is as follows:

Assets = Liabilities + Owner's Equity
$100 = $100 + $0

Behind the scenes in QuickBooks, the following journal entry would be recorded for this transaction:

In this chapter, we explained what QuickBooks is and introduced you to the QBO and QBD product lines. We also provided tips on how to choose the right software for your business, and we provided you with some bookkeeping basics. Having a good understanding of the QuickBooks product lines will help you to choose the best product for your business. In addition, having a basic knowledge of bookkeeping helps you understand the accounting that is taking place behind the scenes in QuickBooks when you enter an invoice or pay a bill.

In the next chapter, we will take an in-depth look at all of the features and benefits included in QuickBooks Online Advanced, including but not limited to customized fields, custom user permissions, workflow automation, importing invoices and budgets, batch-creating invoices, and much more.