quickbooks 2007 aio desk ref for dummies - s. nelson (wiley, 2007) ww

by Stephen L.Nelson, MBA, CPA
QuickBooks
®
2007
ALL-IN-ONE DESK REFERENCE
FOR
DUMmIES
‰
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QuickBooks
®
2007
ALL-IN-ONE DESK REFERENCE
FOR
DUMmIES
‰
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by Stephen L.Nelson, MBA, CPA
QuickBooks
®
2007
ALL-IN-ONE DESK REFERENCE
FOR
DUMmIES
‰
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QuickBooks
®

2007 All-in-One Desk Reference For Dummies
®
Published by
Wiley Publishing, Inc.
111 River Street
Hoboken, NJ 07030-5774
www.wiley.com
Copyright © 2007 by Wiley Publishing, Inc., Indianapolis, Indiana
Published by Wiley Publishing, Inc., Indianapolis, Indiana
Published simultaneously in Canada
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Manufactured in the United States of America
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About the Author
Stephen L. Nelson is a CPA in Redmond, Washington. He provides account-
ing, business advisory, and tax planning and preparation services to small
businesses such as manufacturers, retailers, professional service firms, and
startup technology companies. He also teaches CPAs how to help their clients
use QuickBooks more effectively and is an Adjunct Professor of Tax at Golden
Gate University where he teaches S corporation and LLC tax law.
Curiously enough, Nelson is also the most prolific computer book writer of
all time, according to a recent feature in
The Wall Street Journal. He’s also the
bestselling author of books about how to use computers to manage one’s per-

sonal and business finances. In fact, Nelson’s 100-plus books have sold more
than 4,000,000 copies in English and have been translated into more than a
dozen other languages.
Steve holds a BS in accounting, an MBA in finance, and a Master of Science in
Taxation. He’s been a CPA for more than 20 years. He used to work as a senior
consultant with Arthur Andersen & Co. (Yes,
that Arthur Andersen — but, hey,
it was a long time ago.) He also has been the controller and treasurer of a 50-
person manufacturing firm and has run his own manufacturing firm. Steve is
also the bestselling author of
Quicken 2007 For Dummies and QuickBooks
2007 For Dummies
(from Wiley).
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Dedication
To the entrepreneurs and small-business people of the world. You folks
create most of the new jobs.
Author’s Acknowledgments
Okay, I’m not going to make this an Academy Awards–style speech, but let me
thank just a few people. First, I want to thank my business school and tax pro-
fessors at Central Washington University, the University of Washington, and
Golden Gate University. Next, thanks to the business clients who’ve given me
the honor of working with them and teaching me about their businesses and
industries. Finally, I want to thank all my friends and colleagues at Wiley
Publishing, Inc., who gave me the distinct honor of writing not only this book
but also
Quicken For Dummies (14 editions) and QuickBooks For Dummies
(9 editions). I also want to say a specific thanks to Bob Woerner, my acquisi-
tions editor; Kim Darosett, my project editor; Mary Lagu, my copy editor; and

David Ringstrom, who performed the technical edit.
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Publisher’s Acknowledgments
We’re proud of this book; please send us your comments through our online registration form
located at
www.dummies.com/register/.
Some of the people who helped bring this book to market include the following:
Acquisitions, Editorial, and Media
Development
Project Editor: Kim Darosett
Senior Acquisitions Editor: Bob Woerner
Copy Editor: Mary Lagu
Technical Editor: David Ringstrom
Editorial Manager: Leah Cameron
Media Development Manager:
Laura VanWinkle
Editorial Assistant: Amanda Foxworth
Sr. Editorial Assistant: Cherie Case
Cartoons: Rich Tennant
(
www.the5thwave.com)
Composition Services
Project Coordinator: Erin Smith
Layout and Graphics: Claudia Bell, Carl Byers,
Barbara Moore, Shelley Norris,
Barry Offringa, Heathern Ryan
Special Art:
Proofreaders:
John Greenough,
Christine Pingleton, Sossity R. Smith

Indexer: Techbooks
Anniversary Logo Design: Richard Pacifico
Publishing and Editorial for Technology Dummies
Richard Swadley,
Vice President and Executive Group Publisher
Andy Cummings, Vice President and Publisher
Mary Bednarek, Executive Acquisitions Director
Mary C. Corder, Editorial Director
Publishing for Consumer Dummies
Diane Graves Steele,
Vice President and Publisher
Joyce Pepple, Acquisitions Director
Composition Services
Gerry Fahey,
Vice President of Production Services
Debbie Stailey, Director of Composition Services
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Contents at a Glance
Introduction 1
Book I: An Accounting Primer 7
Chapter 1: Principles of Accounting 9
Chapter 2: Double-Entry Bookkeeping 29
Chapter 3: Special Accounting Problems 47
Book II: Getting Ready to Use QuickBooks 69
Chapter 1: Setting Up QuickBooks 71
Chapter 2: Loading the Master File Lists 87
Chapter 3: Fine-Tuning QuickBooks 109
Book III: Housekeeping Chores 135
Chapter 1: Invoicing Customers 137
Chapter 2: Paying Vendors 169

Chapter 3: Tracking Inventory and Items 187
Chapter 4: Managing Cash and Bank Accounts 215
Chapter 5: Paying Employees 245
Book IV: Accounting Chores 255
Chapter 1: For Accountants Only 257
Chapter 2: Preparing Financial Statements and Reports 271
Chapter 3: Preparing a Budget 289
Chapter 4: Using Activity-Based Costing 301
Chapter 5: Setting Up Project and Job Costing Systems 315
Book V: Financial Management 327
Chapter 1: Ratio Analysis 329
Chapter 2: Economic Value Added Analysis 347
Chapter 3: Capital Budgeting in a Nutshell 359
Book VI: Business Plans 375
Chapter 1: Profit-Volume-Cost Analysis 377
Chapter 2: Creating a Business Plan Forecast 397
Chapter 3: Writing a Business Plan 435
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Book VII: Care and Maintenance 499
Chapter 1: Setting Up a Peer-to-Peer Network 451
Chapter 2: Administering QuickBooks 463
Chapter 3: Protecting Your Data 479
Chapter 4: Troubleshooting 493
Book VIII: Appendixes 499
Appendix A: A Crash Course in Excel 501
Appendix B: Government Web Resources for Businesses 517
Appendix C: Glossary of Accounting and Financial Terms 537
Index 571
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Table of Contents

Introduction 1
About This Book 1
How to Use This Book 2
Foolish Assumptions 3
How This Book Is Organized 4
Book I: An Accounting Primer 4
Book II: Getting Ready to Use QuickBooks 4
Book III: Bookkeeping Chores 4
Book IV: Accounting Chores 4
Book V: Financial Management 4
Book VI: Business Plans 4
Book VII: Care and Maintenance 5
Book VIII: Appendixes 5
Stuff at My Web site 5
Conventions Used in This Book 5
Special Icons 6
Book I: An Accounting Primer 7
Chapter 1: Principles of Accounting . . . . . . . . . . . . . . . . . . . . . . . . . . . . .9
The Purpose of Accounting 9
The big picture 10
Managers, investors, and entrepreneurs 10
External creditors 10
Government agencies 11
Business form generation 11
Reviewing the Common Financial Statements 12
The income statement 12
Balance sheet 15
Statement of cash flows 18
Other accounting statements 21
Putting it all together 22

The philosophy of accounting 24
A Few Words about Tax Accounting 27
Chapter 2: Double-Entry Bookkeeping . . . . . . . . . . . . . . . . . . . . . . . . . .29
The Fiddle-Faddle Method of Accounting 30
How Double-Entry Bookkeeping Works 32
The accounting model 33
Talking mechanics 35
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Almost a Real-Life Example 38
Rent expense 39
Wages expense 39
Supplies expense 39
Recording sales revenue 40
Recording cost of goods sold 40
Recording the payoff of accounts payable 41
Recording the payoff of a loan 41
Calculating account balance 41
Using T-account analysis results 43
A Few Words about How QuickBooks Works 45
Chapter 3: Special Accounting Problems . . . . . . . . . . . . . . . . . . . . . . . .47
Working with Accounts Receivable 47
Recording a sale 48
Recording a payment 48
Estimating bad debt expense 49
Removing uncollectible accounts receivable 50
Recording Accounts Payable Transactions 51
Recording a bill 51
Paying a bill 51

Some other accounts payable pointers 52
Inventory Accounting 53
Dealing with obsolete inventory 53
Dealing with inventory shrinkage 56
Accounting for Fixed Assets 57
Purchasing a fixed asset 57
Dealing with depreciation 57
Disposing of a fixed asset 58
Recognizing Liabilities 60
Borrowing money 60
Making a loan payment 61
Accruing liabilities 62
Closing Out Revenue and Expense Accounts 65
The traditional close 65
The QuickBooks close 66
One More Thing. . . 67
Book II: Getting Ready to Use QuickBooks 69
Chapter 1: Setting Up QuickBooks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .71
Planning Your New QuickBooks System 71
What accounting does 71
What accounting systems do 72
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What QuickBooks does 72
And now for the bad news 72
Installing QuickBooks 73
Dealing with the Pre-Interview Jitters 74
Preparing for the interview 75
What happens during the interview 75

Running the EasyStep Interview 76
The big Welcome 76
Supplying company information 77
Customizing QuickBooks 78
Setting your start date 79
Adding bank accounts 80
Reviewing the suggested chart of accounts 81
Looking at the QuickBooks Learning Center window 82
Identifying the Starting Trial Balance 82
A simple example to start 82
A real-life example to finish 84
Supplying the missing account balances . . . 85
Chapter 2: Loading the Master File Lists . . . . . . . . . . . . . . . . . . . . . . . . .87
Setting Up the Chart of Accounts List 88
Setting Up the Item List 92
Working with the Price Level List 93
Using Sales Tax Codes 93
Setting Up a Payroll Item List 94
Setting Up Classes 95
Setting Up a Customer List 97
Setting Up the Vendor List 100
Setting Up a Fixed Assets List 103
Setting Up Your Employees 104
Setting Up an Other Names List 105
Setting Up the Profile Lists 105
Chapter 3: Fine-Tuning QuickBooks . . . . . . . . . . . . . . . . . . . . . . . . . . . .109
Accessing the Preferences Settings 110
Setting the Accounting Preferences 111
Using account numbers 112
General accounting options 112

Setting the Bill Preferences 114
Setting the Checking Preferences 114
Changing the Desktop View 116
Setting Finance Charge Calculation Rules 117
Setting General Preferences 118
Controlling Integrated Applications 119
Controlling Inventory 120
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Controlling How Jobs and Estimates Work 121
Controlling How Payroll Works 122
Telling QuickBooks How Reminders Should Work 123
Specifying Reports & Graphs Preferences 124
Setting Sales & Customers Preferences 127
Specifying How Sales Are Taxed 128
Setting the Send Forms Preferences 129
Fine-Tuning the Service Connection 130
Controlling Spell Checking 131
Controlling How 1099 Tax Reporting Works 132
Setting Time Tracking Preferences 132
Book III: Housekeeping Chores 135
Chapter 1: Invoicing Customers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .137
Choosing an Invoice Form 137
Customizing an Invoice Form 138
Choosing a template to customize 138
Easy invoice customizations 139
Reviewing the Additional Customization options 141
Working with the Layout Designer tool 144
Invoicing a Customer 147

Billing for Time 153
Using a weekly timesheet 153
Timing single activities 154
Including billable time on an invoice 156
Printing Invoices 157
E-Mailing Invoices 157
Recording a Sales Receipt 158
Recording Credit Memos 161
Receiving Customer Payments 162
Assessing Finance Charges 164
Setting up finance charge rules 164
Calculating finance charges 165
Customer Odds and Ends 166
Chapter 2: Paying Vendors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .169
Creating a Purchase Order 169
A real purchase order 169
Purchase order tips and tricks 172
Recording the Receipt of Items 173
Simultaneously Recording the Receipt and the Bill 176
Entering a Bill 177
If you haven’t previously recorded an item receipt 177
If you have previously recorded an item receipt 178
Recording a credit memo 180
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Paying Bills 180
Reviewing the Other Vendor Menu Commands 184
Vendor Center 184
Vendor Ratings Online 185

Sales Tax menu commands 185
Inventory Activities 185
Print 1099s/1096 186
Item List 186
Chapter 3: Tracking Inventory and Items . . . . . . . . . . . . . . . . . . . . . . . .187
Looking at Your Item List 187
Using the Item column 188
Using the Item List window 189
Using the inventory reports 190
Adding Items to the Item List 190
Basic steps for adding an item 191
Adding a service item 192
Adding an inventory item 193
Adding a non-inventory part 195
Adding an other charge item 196
Adding a subtotal item 198
Adding a group item 198
Adding a discount item 200
Adding a payment item 201
Adding a sales tax item 202
Setting up a sales tax group 202
Adding custom fields to items 203
Editing Items 204
Adjusting Physical Counts and Inventory Values 205
Adjusting Prices and Price Levels 208
Using the Change Item Prices command 208
Using price levels 209
Inventory in a Manufacturing Firm 211
Manufactured inventory the simple way 211
Inventory accounting in QuickBooks Premier 211

Chapter 4: Managing Cash and Bank Accounts . . . . . . . . . . . . . . . . .215
Writing Checks 215
Recording and printing a check 215
Customizing the check form 221
Making Bank Deposits 223
Transferring Money between Bank Accounts 226
Working with the Register 227
Recording register transactions 227
Using Register window commands and buttons 230
Using Edit Menu Commands 233
Reconciling the Bank Account 238
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Reviewing the Other Banking Commands 241
Order Checks & Envelopes command 241
Enter Credit Card Charges command 241
Online Banking command 243
Online Banking Center command 244
Loan Manager 244
Other Names list 244
Chapter 5: Paying Employees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .245
Setting Up Do-It-Yourself (Standard) Payroll 245
Signing up for a payroll service 246
Setting up employees 247
Describing an employee 248
Setting up year-to-date amounts 251
Checking your payroll setup data 251
Scheduling Payroll Runs 252
Paying Employees 252

Editing and Voiding Paychecks 253
Paying Payroll Liabilities 254
Book IV: Accounting Chores 255
Chapter 1: For Accountants Only . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .257
Working with QuickBooks Journal Entries 257
Recording a journal entry 258
Reversing a journal entry 259
Editing journal entries 259
Updating Company Information 260
Working with the Memorized Transactions 260
Reviewing the Accountant & Taxes Reports 261
Reviewing the Expert Analysis Reports 263
A Few Words about the Decision Tools 263
Creating an Accountant’s Copy of the QuickBooks Data File 264
Creating an accountant’s copy 265
Using an accountant’s copy 266
Reusing an accountant’s copy 267
Exporting client changes 267
Importing accountant’s changes 269
Canceling accountant’s changes 270
Chapter 2: Preparing Financial Statements and Reports . . . . . . . . . .271
Some Wise Words Up Front 271
Producing a Report 272
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Working with the Report Window 274
Working with Report window buttons 274
Using the Report window boxes 278
Modifying a Report 280

Using the Display tab 280
Using the Filters tab 282
Using the Header/Footer tab 284
Formatting fonts and numbers 285
Processing Multiple Reports 286
A Few Words about Document Retention 287
Chapter 3: Preparing a Budget . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .289
Reviewing Common Budgeting Tactics 289
Top-line budgeting 289
Zero-based budgeting 290
Benchmarking 291
Putting it all together 292
Practical Approaches to Budgeting 292
Using the Set Up Budgets Window 292
Creating a new budget 293
Working with an existing budget 295
Managing with a Budget 297
Some Wrap-Up Comments on Budgeting 298
Chapter 4: Using Activity-Based Costing . . . . . . . . . . . . . . . . . . . . . . .301
Revealing Traditional Overhead Allocation 301
How ABC Works 304
The ABC product line income statement 304
ABC in a small firm 307
Implementing a Simple ABC System 308
How QuickBooks Supports ABC 310
Turning On Class Tracking 310
Using Classes for ABC 311
Setting up your classes 311
Classifying revenue amounts 311
Classifying expense amounts 313

After-the-fact classifications 313
Producing ABC reports 314
Chapter 5: Setting Up Project and Job Costing Systems . . . . . . . . . .315
Setting Up a QuickBooks Job 315
Tracking Job or Project Costs 318
Job Cost Reporting 321
Using Job Estimates 322
Progress Billing 324
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Book V: Financial Management 327
Chapter 1: Ratio Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .329
Some Caveats about Ratio Analysis 330
Liquidity Ratios 331
Current ratio 331
Acid test ratio 332
Leverage Ratios 333
Debt ratio 333
Debt equity ratio 334
Times interest earned ratio 334
Fixed-charges coverage ratio 335
Activity Ratios 337
Inventory turnover ratio 337
Days of inventory ratio 338
Average collection period ratio 339
Fixed asset turnover ratio 340
Total assets turnover ratio 340
Profitability Ratios 341
Gross margin percentage 341

Operating income/sales 342
Profit margin percentage 342
Return on assets 343
Return on equity 343
Chapter 2: Economic Value Added Analysis . . . . . . . . . . . . . . . . . . . . .347
Introducing the Logic of EVA 347
EVA in Action 348
An example of EVA 349
Another example of EVA 350
Some Important Points about EVA 351
Using EVA When Your Business Has Debt 352
The first example of the modified EVA formula 353
Another EVA with debt example 354
Two Final Pointers 356
And Now a Word to My Critics 357
Chapter 3: Capital Budgeting in a Nutshell . . . . . . . . . . . . . . . . . . . . .359
Introducing the Theory of Capital Budgeting 359
The big thing is the return 360
One little thing is maturity 360
Another little thing is risk 361
Putting It All Together 361
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Calculating the Rate of Return on Capital 362
Calculate the investment amount 362
Estimate the net cash flows 363
Calculating the return 367
Measuring Liquidity 371
Thinking about Risk 372

What Does All This Have to Do with QuickBooks? 373
Book VI: Business Plans 375
Chapter 1: Profit-Volume-Cost Analysis . . . . . . . . . . . . . . . . . . . . . . . .377
How Profit-Volume-Cost Analysis Works 378
Calculating Breakeven Points 379
Using Real QuickBooks Data for Profit-Volume-Cost Analysis 381
Sales revenue 382
Gross margin percentage 382
Fixed costs 383
The Downside of the Profit-Volume-Cost Model 383
Using the Profit-Volume-Cost Analysis Workbook 385
Collecting your inputs 385
Understanding the breakeven analysis 389
Understanding the profit-volume-cost forecast 390
Looking at the profit-volume-cost charts 392
Chapter 2: Creating a Business Plan Forecast . . . . . . . . . . . . . . . . . . .397
Reviewing Financial Statements and Ratios 397
Using the Business Plan Workbook 399
Understanding the Workbook Calculations 406
Forecasting inputs 406
Balance Sheet 406
Common Size Balance Sheet 414
Income Statement 415
Common Size Income Statement 419
Cash Flow Statement 420
Inventory Investments 424
Financial Ratios Table 426
Customizing the Starter Workbook 431
Changing the number of periods 432
Ratio analysis on existing financial statements 432

Calculating taxes for a current net loss before taxes 432
Combining this workbook with other workbooks 433
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Chapter 3: Writing a Business Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . .435
What the Term Business Plan Means 435
A Few Words about Strategic Plans 436
Cost strategies 436
Differentiated products and services strategies 437
Focus strategies 437
Look, Ma: No Strategy 437
Two comments about tactics 438
Six final strategy pointers 439
Writing a White Paper Business Plan 440
Writing a New Venture Plan 443
Is the new venture’s product or service feasible? 443
Does the market want the product or service? 444
Can the product or service be profitably sold? 445
Is the return on the venture adequate
for prospective investors? 445
Can existing management run the business? 446
Some final thoughts 447
Book VII: Care and Maintenance 499
Chapter 1: Setting Up a Peer-to-Peer Network . . . . . . . . . . . . . . . . . .451
Can Your Business Benefit from a Network? 452
What Is a Peer-to-Peer Network? 452
Hardware Requirements 453
Connecting Your Network Hardware 454
Configuring Your Host Computer 455

Configuring Other Windows Computers on the Network 458
Installing and Using a Networked Printer 459
Sharing Resources on the Network 460
Accessing Shared Resources 462
Chapter 2: Administering QuickBooks . . . . . . . . . . . . . . . . . . . . . . . . .463
Keeping Your Data Confidential 463
Using Windows security 463
Using QuickBooks security 464
QuickBooks in a Multi-User Environment 465
Setting up additional QuickBooks users 465
Changing user rights 471
A Few Words about Closing 472
Using Audit Trails 472
Turning on Audit Trail Tracking 473
Producing an Audit Trail Report 473
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Simultaneous Multi-User Access 474
Maintaining Good Accounting Controls 475
Chapter 3: Protecting Your Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .479
Backing Up the QuickBooks Data File 479
Backing up basics 479
What about online backup? 482
Some backup tactics 482
Restoring a QuickBooks Data File 483
Cleaning Up the QuickBooks Company Files 486
Clean-up basics 488
Some clean-up and archiving strategies 491
Chapter 4: Troubleshooting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .493

Using the QuickBooks Help File and This Book 493
Browsing Intuit’s Product-Support Web Site 494
Checking Another Vendor’s Product-Support Web Site 495
Tapping into Intuit’s Product-Support System 496
Trying an Internet Newsgroup 497
When All Else Fails . . 498
Book VIII: Appendixes 499
Appendix A: A Crash Course in Excel . . . . . . . . . . . . . . . . . . . . . . . . . .501
Starting Excel 501
Stopping Excel 502
Explaining Excel’s Workbooks 503
Putting Text, Numbers, and Formulas into Cells 504
Writing Formulas 504
Scrolling through Big Workbooks 505
Copying and Cutting Cell Contents 506
Copying cell contents 506
Moving cell contents 507
Moving and copying formulas 507
Formatting Cell Contents 508
Functions Are Simply Formulas 509
Saving and Opening Workbooks 512
Saving a workbook 513
Opening a workbook 513
Printing Excel Workbooks 514
One Other Thing to Know 515
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Appendix B: Government Web Resources for Businesses . . . . . . . .517
Bureau of Economic Analysis 517

Information available at the BEA Web site 518
Downloading a BEA publication 519
Uncompressing a BEA publication 519
Using the BEA publication 520
Bureau of Labor Statistics 520
Information available at the BLS Web site 521
Using Bureau of Labor Statistics information 522
Census Bureau 524
Information available at the Census Bureau Web site 525
Using the Census Bureau’s publications 527
Using the Census Bureau search engine 527
Using the Census Bureau site index 527
SEC EDGAR 527
Information available through EDGAR 529
Searching the EDGAR database 529
The Federal Reserve Web Site 531
Information available at the Federal Reserve Web site 532
Using the Federal Reserve Web site’s information 532
Using the Government Printing Office Access Site 533
Information available at the GPO Access site 533
Searching the GPO Access database 533
Using the Internal Revenue Web Site 534
Appendix C: Glossary of Accounting and Financial Terms . . . . . . . .537
Index 571
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