Ratios to Stave Off Financial Problems
Use Accounting Ratios to Stave Off Financial Problems
Does the mere mention of accounting ratios may put your teeth on edge, and bring back bad memories of
Accounting 101? It shouldn't as ratios can help your quickly determine how your business compares against
Banks often use ratios to analyze your financial statements as part of the loan approval process, so it's
helpful to know in advance how you'll be measured. Even better, ratios allow you to compare your business
against your peers since many trade groups publish lists of average ratios within an industry.
Although ratios may have made you drowsy during accounting class, they can be a fascinating way to measure
your company's financial performance.
Gross Profit Margin
Simply put, gross profit margin-sometimes referred to as gross margin-is your revenues less your cost of
sales. For some industries, this is a very meaningful metric, while it won't mean as much to others. For
instance, manufacturers, restaurants, and retailers often treat gross profit as a key performance
In such environments, one typically purchases inventory at one price, and ideally sells it to someone else
at a higher price. The spread between these two numbers is the gross profit margin.
Let's say that you buy $40 of pine straw (we're trying to avoid the accounting class term widget) and sell
it for $60. In this case, $20 of gross margin divided by $60 of sales yields a gross margin percentage of
33%. Thus one-third of your sales are available to put toward overhead items, such as office supplies,
payroll, rent, taxes, and so on.
Ideally your gross margin is high enough to cover your overhead and leave you with a profit. With that
example in mind, let's see how you can calculate your own gross profit margin.
Caveat: Gross profit margin isn't meaningful to everyone. For instance, if you're a self-employed service
provider, you may not have any cost of sales.
Your salary is arguably all or most of your profit. You can certainly count your salary as cost of sales
and compute a gross profit margin, but you might not find much value in the result.
To begin, choose Reports, Company and Financial, and then Profit & Loss Standard. As shown in Figure
1, look for the Gross Profit amount, and then divide this by Total Income.
The Profit and Loss Standard report provides the figures you need to calculate gross profit.
In this case, $30,953.20/$51,241.16 shows a gross profit margin of 60.4%. Is that good? Is it bad? Very
often the answer is 'it depends', which is why you should try to compare yourself to similar companies in
However, let's consider the restaurant industry. Many owners strive to keep their gross margin at around
63%, which means a cost of goods sold percentage of 37%. The gross profit ratio enables you to track this
key measurement, but you must ensure that your transactions are being recorded in the proper accounts.
The percentages can skew if, let's say a telephone bill, is miscoded to Food Costs, instead of Telephone.
Similarly, your cost of goods sold might look great only because someone miscoded food costs into an
overhead account, such as Supplies.
Profit margin is another commonly used ratio that you can derive from the Profit & Loss Standard report
by dividing Net Income by Total Income. In essence, this is the percentage of sales that the owner of a
business gets to keep before Uncle Sam gets his share. Profit margins vary widely by industry.
For example, a grocery store chain may have profits of $2 billion, but a profit margin of just 2.6%. An
oil company may have staggering profits in dollars, but their profit margin is often just 10%. Conversely,
some software companies have a profit margin of 28% or more.
As with gross profit, the best way to determine whether a profit margin is reasonable is by comparing the
result to one's peers. The construction company shown in Figure 1 has Net Income for the
period of $13,123.48, which when divided by Total Income of $51,241.16 returns a profit margin of 25.6%.
Inventory Turnover Ratio
This ratio illustrates how many times a year that you're selling your entire inventory. This can help you
gauge whether you may be holding too much inventory, or not enough. This ratio is based on cost of goods
sold divided by average inventory.
As you've seen, cost of goods sold appears on the Profit and Loss Standard report look for Total COGS but
you'll have to perform a quick calculation to determine average inventory. To do so, divide the sum of your
beginning inventory plus ending inventory by 2.
Although you can use several different reports in QuickBooks™ to determine the beginning and ending balance
of your inventory, try this first: choose Reports, Company and Financial, and then Balance Sheet Prev Year
Change the report date to This Fiscal Year, and then look for the inventory account balance, as shown in
Figure 2.The ending balance for last year is also the beginning balance for this year.
If you need beginning and ending balances for a shorter period, such as a quarter, choose Reports,
Accountant and Taxes, and then General Ledger. Set the report dates to the period of your choice, and then
use the beginning and ending balances for your inventory account.
The Balance Sheet Prev Year Comparison can provide beginning and ending inventory balances
Average Collection Period
This ratio helps you determine how long it takes your customers to pay their invoices. The formula is a
little more complex than some of the other ratios: number of days multiplied by average accounts receivable
balance, divided by credit sales.
For instance, let's say that your average accounts receivable balance is $30,000, and you had total sales
of$400,000 for the year. 365 multiplied by 30,000 is 10,950,000. This amount divided by our total sales of
$400,000 is 27.38, meaning that on average your customers pay their invoice in just under 30 days.
Be sure to monitor your average collection period, as your cash flow can tighten quickly if that ratio
increases. If you typically invoice your customers, then you can use the Total Income figure from your
Profit & Loss Standard report.
Keep in mind: Average collection period won't be of interest if your customers pay on the spot, such as in
a retail store or restaurant.
Although QuickBooks™ doesn't directly provide a figure for average accounts receivable, you can quickly
customize a report to aid in this calculation:
- Choose Reports, Company and Financial, and then Balance Sheet Standard.
Click the Modify report button, and then set the From and To dates to match the period shown on your
Profit & Loss report. As shown in Figure 3, change the Display Columns By to Months,
and then click OK.
Change Display Columns By to Months when you want a month-by-month report.
When QuickBooks™ displays the 12-month report, as shown in Figure 4, click the Export
button, and then click OK to send the report to Microsoft Excel.
You can convert the Balance Sheet Standard report into a twelve-month format.
As shown in Figure 5, row 9 contains the Accounts Receivable figures. In cell R9, enter
this formula to calculate your average accounts receivable balance: =AVERAGE(F9:R9).
Use the Accounts Receivable figures to calculate your average accounts receivable balance.
As you can see, the average collection period ratio enables you to determine how long it takes your
customers to honor your invoices, which in turn has a direct impact on your cash flow.
Other Common Ratios
Current Ratio: Divide current assets by current liabilities to determine a firm's liquidity.
Quick Ratio: Subtract inventory from current assets, and then divide by current liabilities to apply a more
severe liquidity measurement.
Debt Ratio: Divide total debt by total assets to determine how much of the company is financed by debt.
Return On Assets: Banks often add net income plus interest expense together, and then divide this by total
assets to determine the firm's return on assets. This figure typically needs to exceed the interest rate of
a loan that you may be contemplating.
Compare Yourself to Others
Now that you understand how to calculate ratios based on your financial results, the next step is to
compare yourself to your peers. If you belong to a trade group that makes benchmarks available to its
members, this is a good place to start.
Your line of business may be included in their free offerings, but even more information is available on a
subscription basis. You can find even more resources by searching the Internet search for the term 'industry
Did You Know?
You can send your thoughts about QuickBooks™ to Intuit directly from within QuickBooks. To do so, choose
Help, Send Feedback Online, and then one of these choices:
- Product Suggestion, as shown in Figure 6
- Bug Report
- Help System Suggestion
Any of these links will display an online from in your web browser so that you can submit your thoughts
directly to the QuickBooks™ development team. QuickBooks™ frequently updates its' products, so before you
send a bug report, choose Help, and then Update QuickBooks. Click the Update Now button to ensure that you
have the latest patches and fixes for your version of QuickBooks.
Submit your wish-list items directly to the development team from within QuickBooks.
Profit & Loss
Report Versus Statement of Cash Flows
Profit & Loss Report Versus Statement of Cash Flows
If you're like most QuickBooks™ users, you rely on the Profit & Loss Standard report to monitor how
your business is doing. However, you may have overlooked an even more valuable report: the Statement of Cash
The Profit & Loss Standard (P&L) report is important in its own right, but it only provides partial
insight into the health of your business. While the P&L shows what you earned and spent, the Statement
of Cash Flows shows you where the cash came from and went to, also known as sources and uses.
As you'll see in this article, you can use the Statement of Cash Flows to determine the how various
activities increased or decreased your cash balance during a given report period.
Cash versus Accrual
Unlike some accounting packages, QuickBooks™ allows you to run most reports on either the cash or accrual
Cash-basis means that transactions don't appear on your Profit & Loss statement until either your
customer pays their invoice or you pay a vendor (or employee). So, if you enter a bill in QuickBooks™ to be
paid later, the expense won't immediately appear on a cash-basis P&L.
Similarly, invoices that you send to customers won't immediately appear on a cash-basis P&L. The
expense appears when you write a check to the vendor, and the revenue appears when the customer honors their
invoice. Accordingly, cash-basis reports don't necessarily report a company's true financial
You could have a stellar looking Profit & Loss Report, but a list full of unpaid bills in QuickBooks.
Accordingly, many accountants prefer that business owners use accrual-basis reports.
Accrual-basis reports recognize the effect of every transaction on your P&L immediately. Customer
invoices appear on accrual-basis P&L reports as soon as you save the transaction, as do unpaid vendor
bills. You can easily see the significance of these differences in Figures 1 and
Cash-basis reports only reflect paid transactions.
Accrual-basis reports include all transactions - both paid and unpaid.
Accrual-basis reports provide a much better picture of where the business stands, but can make it harder to
understand your current cash position. However, a cash-basis P&L isn't a panacea for managing cash flow,
as your business has many transactions that don't affect the P&L.
For instance, loan payments, owner distributions, and owner contributions affect your balance sheet, which
tracks assets, liabilities, and equity. Fortunately, the Statement of Cash Flows reflects these types of
transactions and more, so it's a great companion to both cash-basis and accrual-basis P&L reports.
Set Your Preference
You can instruct QuickBooks™ to always display your reports on either cash or accrual basis:
- Choose Edit, and then Preferences.
- Choose Reports & Graphs, and then Company Preferences.
As shown in Figure 9, specify either Cash or Accrual, and then click OK.
You can set either cash or accrual as your default report format.
Of course, at any time you can change a report to the other format. For instance, if your preference is set
to accrual, but you may sometimes want to view a cash basis P&L:
- Choose Reports, Company & Financial, and then Profit & Loss Standard.
Click the Modify Report button, and then choose Cash in the Report Basis section, as shown in Figure
You can change the accounting method for your P&L on the fly.
NOTE: Most, but not all, reports in QuickBooks™ allow you to change between cash and
accrual. When a report is onscreen, choose Modify Report.
If you don't see the Report Basis section, shown in Figure 11, then you'll know that you
can't toggle the report basis. Now that you understand the ins-and-outs of running cash and accrual basis
reports, let's explore the Statement of Cash Flows.
The Statement of Cash Flows
Let's say that your cash balance at the beginning of your fiscal year was $100,000, and today it is
$75,000. The net income figure on your P&L won't give you the full details on why your cash balance
decreased, but the Statement of Cash Flows will. To do so, choose Reports, Company & Financial, and then
Statement of Cash Flows.
Report periods: As shown in Figure 11, this report automatically defaults to This Fiscal
Year-To-Date, but you can choose another time period if you wish. To do so, make a choice from the Dates
drop-down list, or modify the From and To dates, and then click the Refresh button.
The Statement of Cash Flows defaults to the current fiscal year.
Your Statement of Cash Flows report will include up to three major sections:
- Operating Activities
- Investing Activities
- Financing Activities
Don't worry if your report only includes one or two of these sections - sections only appear when you had
relevant transactions during the report period. Let's explore each of these sections individually.
The Operating Activities section of the Statement of Cash Flows recaps activities related to running your
business. This section will always start with Net Income, followed by an adjustments section.
The adjustments reconcile your net income with the net cash provided by the operating activities.
Net income s $112,999 but the Net Cash Provided by Operating
Activities is $42,584. Accordingly, the statement of cash flows identifies the $70,415 difference. Let's
investigate a couple of the items:
Accounts Receivable (-$71,759): During the report period we sent invoices to our customers, of which
$31,503.08 remain unpaid. These unpaid invoices are reflected in the Net Income figure, so QuickBooks™ deducts
these because we haven't received this cash yet.
Inventory Asset (-$17,354): Amounts that we spend on inventory don't become part of Net Income until we've
sold the items. At that point QuickBooks™ posts the expense to cost of good sold, and reduces our inventory
account accordingly. Purchasing inventory is a use of cash, so it appears as a negative amount on our
Statement of Cash Flows.
Remember: The purpose of the Statement of Cash Flows is to reconcile our net income with
the actual change in our cash account. Thus non-cash activities, such as unpaid customer invoices or
amortized prepaid expenses get subtracted or added from Net Income, so that you can get a clear picture of
where cash went during the report period.
Employee Advances (-$62): We paid $62 to an employee as an advance, which has not yet been repaid. This
amount isn't included in Net Income, but is a use of cash, so the amount is deducted. When our employee
repays the advance, our Statement of Cash Flows will reflect a positive amount, since at that point we'll
have a $100 source of cash.
Prepaid Insurance ($893): During the report period we amortized, or used up, $893 of prepaid insurance.
This expense is included in our Net Income figure, but we didn't write a check for it during this report
period, so QuickBooks™ adds this expense back.
Accounts Payable ($13,537): We've entered bills into QuickBooks™ totaling $13,537 that we haven't paid yet.
In effect, we're temporarily borrowing this money from our vendors, so it's a source of cash. Later, our
Statement of Cash Flows will show a use of cash when we pay the vendor bills. This same treatment applies to
credit cards and other liabilities.
As you look through the Statement of Cash Flows, you may also see Investing and Financing activities.
Investing activities may include owner contributions as a source of cash, or in the case of the report in
Figure 11, the purchase of $11,500 in furniture as a use of cash.
Financing activities will show borrowing on a line of credit or other loan as a source of cash, while loan
repayments (net of interest) will appear as uses of cash. In the end, you'll see exactly what caused your
cash balance to increase or decrease during the report period.
Research: You can easily investigate why amounts appear on your Statement of Cash Flows.
As shown in Figure 12, the QuickZoom icon appears when you hover over an amount.
Double-click to display a detailed report, as shown in Figure 13.
The QuickZoom icon indicates that you can drill-down within a QuickBooks™ report.
A detailed report appears when you double-click on an amount within a QuickBooks™ report.
Organizing the Statement of Cash Flows
QuickBooks™ makes an educated guess at what accounts in your chart of accounts should appear on the
Statement of Cash Flows. However, you may encounter instances where activities appear in the wrong section,
or don't appear at all on the report. You can easily remedy such situations:
- Choose Edit, and then Preferences.
- Choose Reports & Graphs, and then Company Preferences.
- Click the Classify Cash button.
As shown in Figure 14, place a checkbox in the appropriate column. You cannot remove
balance sheet accounts from the statement, but you can optionally include income and expense accounts.
However, keep in mind that this is not a typical need, and you should only proceed under the guidance of
your accountant or tax advisor.
QuickBooks™ allows you to classify accounts as operating, financing, or investing activities.
Did You Know?
QuickBooks™ has a Product Information window that can provide a dizzying array of information. Press Ctrl-1
to display the window shown in Figure 15. Some key elements on this screen include the
product number shown at the top.
Each QuickBooks™ user in your office should have the same release number. The size and location of your
QuickBooks™ file is shown in the File Information section, while you can use the List Information section to
determine how many customers and vendors you have in QuickBooks.
Press Ctrl-1 to view the Product Information window.
QuickBooks™ Helps You Navigate
The price of gasoline is just one of many factors putting pressure on our economy as a whole. Now it's more
important than ever to keep a close eye on your company's performance. Many business owners compare
financial results to an annual budget. If you don't have your budget in place yet, we'll show you how to get
started. Even if you have, we'll show you how to use last year's results as a measuring stick with
comparative financial reports. Once you understand these techniques, we'll explain why you should create a
monthly appointment with yourself to ensure that your results continue to measure up and take action if they
TIP: Keep in mind that tough financial years do have a silver lining-you'll likely pay less in income
taxes. If revenues are down or expenses are up, don't forget to trim your withholding or estimated tax
payments accordingly. Doing so enables you to boost your cash flow now, rather than waiting around on a tax
refund next spring.
The QuickBooks™ Planning & Budgeting menu gives you the ability to create budgets and forecasts. In
reality, both features work the same way, so we'll use creating a budget as our example. But which one
should you use? You might find it helpful to use the Forecast feature as an alternate budget and as a
best-case scenario, while the Budget feature offers a better expectation of reality. Either way, here's how
to create a budget in QuickBooks:
1. Choose Company, Planning & Budgeting, and then Set Up Budgets.
2. When the Set Up Budgets window appears, click the Create New Budget button in the upper right-hand
3. Select the year that you'd like to create a budget for (such as 2010 or 2011), select Profit and Loss,
and then click Next.
Balance sheet budgeting: QuickBooks™ offers the ability to create a budget for balance
sheet accounts, such as planning for expected levels of cash, inventory, accounts receivable, liabilities,
and so on. However, most small business owners find that just a Profit and Loss budget is sufficient for
4. Most users will choose No Additional Criteria on the next screen. However, QuickBooks™ does provide
the option for a more granular budget that you break down to the customer, job, or class level. Click Next
once you make a selection.
5. The next screen asks if you want to start with a blank budget from scratch or if you want to use last
year's actual data as a starting point. Most users will find it helpful to use the previous year as a
starting point. Click Finish after you make a choice.
6. At this point you're presented with a screen similar to Figure 16. You won't see any
numbers if you chose the From Scratch option in step 5.
Starting with prior-year actual numbers can jumpstart your budget process.
7. Proceed with entering or updating your budget. Click the Save button as needed to preserve your work
as you go, and then click the OK button when you're finished.
Budget Tips: The Copy Across button enables you to copy the same amount across all twelve
months. As shown in Figure 17, the Adjust Row Amounts button provides a quick way to adjust
existing numbers up or down by either a percentage or dollar amount. You can edit your budget at any time:
choose Company, Planning & Budgeting, and then Set Up Budgets. Choose your budget from the Budget list,
and then make changes as needed.
The Adjust Row button makes it easy to quickly increase or decrease budget figures by a dollar amount or
QuickBooks™ offers four budget and two forecast reports. You'll use these steps to run most of these
1. Choose Reports, Budget & Forecasts, and then the report of your choice.
2. A three-screen wizard appears, asking you first which budget or forecast you wish to use. Once you've
made a selection, click Next.
3. The next screen asks which report layout to use - you may only choose one, Account by Month - click
Next after you confirm your choice.
4. Click Finish to display your report:
Budget Overview - As shown in Figure 18, this report provides a twelve-month view of
Budget vs. Actual - This 52 column report can be tricky to navigate, as the default format shows these
columns for each month, as well as a 12-month total.
Budget overview gives you a birds-eye view of your 12-month budget.
Report Taming Tips: There are a couple of ways to bring this report down to size. First,
most users can eliminate the % of Budget column. To do so, click the Modify Report button, and then deselect
% of Budget in the Add Subcolumns For section. Next, you can shrink the width of the columns. To do so, drag
the diamond between the first actual and budget columns to the left, as shown in Figure 19. When
you release the left mouse button, choose Yes when asked if you want to resize all of the columns.
Alternatively, click the Export button to send the report to Excel.
Narrow column widths can condense particularly wide reports.
- Profit & Loss Budget Performance - This report compares your month and year-to-date
actuals to the budgeted amounts, and also displays the 12-month budget. Although this report doesn't
display dollar or percentage variances, you can easily add these columns. Click the Modify Report button,
and then select $ Difference and/or % Of Budget in the Add Subcolumns For section, as shown in Figure
It's easy to add or remove columns on any QuickBooks™ report.
- Budget vs. Actual Graph - This report doesn't enable you to choose a budget - the
current year budget is displayed automatically. This report enables you to get a
graphic view of how your results measure up to your budget. You can choose between different budget views:
- P&L By Accounts - This view compares your Profit & Loss accounts, also
known as income and expense, to the corresponding budgets. The report automatically sorts variances by
difference, and you can view up to six accounts at a time.
- P&L By Accounts and Jobs - This view compares your P&L accounts on a
job-by-job basis. Jobs with the largest total variance from budget will be presented first, and as
with accounts, you can view six at a time.
- P&L By Accounts and Classes - This view compares your P&L accounts on a
class basis. As with the other views, you can view up to six classes at a time. This button appears
even if you haven't set the Enable Class Tracking preference.
Class Tracking: Classes allow you to you track costs by department, project, or other
categories. To enable class tracking, choose Edit, Preferences, and then Accounting. On the Company tab,
select Enable Class Tracking.
Graph Printing limitation: You cannot print more than one page of the budget graphs at a
time, so you'll have to click Next Group and then click Print to create a hard copy of each report group.
QuickBooks™ doesn't provide a way to print all of the graphs in one fell swoop. You also can't modify the
graph format, other than to choose a different date range.
Regardless of whether you use budgets in QuickBooks™ or not, it's always helpful to compare this year's
results to last year. Doing so enables you to see trends in your data, such as how automobile expenses have
increased. Such a report is just a couple clicks away:
1. Choose Reports, Company and Financial, and then Profit & Loss Prev Year Comparison.
2. By default you'll see this year compared to last year. However, you can easily create a multi-year
a. Click the Modify Report button.
b. In the Columns section, choose Year from the Display Columns By drop-down list, and then click
c. On the report screen, choose a date range, such as 1/1/04 through 12/31/08, and then click the
Refresh button. As shown in Figure 21, a multi-year comparison will appear onscreen. If you find this
format helpful, click the Memorize button to save this report for later use.
You can convert the Profit & Loss Prev Year Comparison into a multi-year report.
In this article we discussed how you can use the budget and forecast feature in QuickBooks™ to plan the
future of your business. As each month rolls by, you can compare your plan to actual results. In addition,
you can compare this year's results to last year, or even the last several years.
Did you know?
Did you know that an accountant's copy of a QuickBooks™ file can be converted to a normal QuickBooks™
company, i.e. a .QBW file? There are limited circumstances where you'd want to do so, because it's not
possible to merge two .QBW data files together. However, let's say that you lose access to your QuickBooks™
company because your hard drive crashes or someone steals your laptop. These are situations where a
converted accountant's copy would be better than starting from scratch. If you need to do this, ask your
accountant to carry out these steps in their version of QuickBooks:
1. Choose File, Utilities, and then Convert Accountant's Copy to Company File (QBW).
2. Choose the Accountant's Copy to convert.
3. Click OK on the prompt shown in Figure 22.
4. Assign a name to the new company file, and then click Save.
A final warning prompt will appear to confirm that this copy will overwrite any existing client copy of the
Converting an accountant's copy to a working QuickBooks™ company can serve as a disaster recovery method.
Of course, the best defense is to make frequent back-ups of your QuickBooks™ data on removable media, such
as the USB flash drives that often cost less than $10. These easily allow you to carry your QuickBooks™
back-up offsite, such as in your purse or briefcase. But, it's good to know that your accountant might be
able to provide a working QuickBooks™ company - as long as you recently sent your accountant's copy along to
Use QuickBooks™ Pro to manage your business and personal checking account.
QuickBooks™ Pro can be used to manage many different files. In your case, you could have a QuickBooks™ file
called "Business", and a completely separate QuickBooks™ file called "Home" to manage the separate
checkbooks. For more information on the creation of a new company file, click on File in the menu bar, then
How To Easily Track Your Inventory
Do you know where your physical inventory items are? Whether you keep them in a closet, in an unused
office, or a warehouse, you need to keep a close watch on how many products you have, how many have been
ordered, and when it's time to reorder. Fortunately, QuickBooks™ has tools that help you track all of those
numbers. If you're conscientious about making use of them, you should have a good sense of the state of your
inventory, wherever you store it.
Note: These tools are not available in Simple Start or QuickBooks™ Online.
Let's take a look at the life of an inventory item. First, you have to tell QuickBooks™ that you will be
selling products. It asks for this information during the EasyStep interview, but if for some reason you
didn't set this up, you can still do it. Click Edit/Preferences, then Items & Inventory, and then
Company Preferences. Make sure the first line is checked, as well as any others you want active, as seen in
You can have QuickBooks™ track your inventory by selecting this option in the Preferences window.
Next, check your Chart of Accounts to see if you need to add any accounts to meet your inventory needs.
This is easy. Go to Lists/Chart of Accounts, or click the icon on the home page. The Chart of Accounts is
simply a list of the accounts your company uses, and the balance for each. QuickBooks™ sets a chart up for
you based on the type of company you have, but as your business grows, you may need to add more. Figure 24
shows an example of the Chart of Accounts window.
The Chart of Accounts window shows you the balance for each of your accounts.
To add a new account, click on the arrow next to Account and click New. Select the correct type of account,
and answer the questions in the Add New Account window. If you have any questions here, consult QuickBooks'
See Your Inventory In High Definition
Next you'll have to define your company's products. Click Items & Services on the home page. The Item
list opens. You can always come back here when you need to edit an item, but you may want to create one now.
So click Item/New. You'll see a screen similar to the one pictured in Figure 25, but its fields will be
blank. Item records in QuickBooks™ contain a good amount of information about each item, which will be used
in forms like invoices and documents like reports.
An item record allows you to define your company's product.
Fill out the information in each item record for each item you sell. You won't be able to alter the numbers
in the lower right corner; these come from other parts of the program. As for the other values, the need to
make changes depends on the field. When you defined the item, you entered an On Hand amount. This of course
will change as you sell, so you can change the reorder point. Conversely, the average cost (value of your
inventory) is calculated by the program; it's the total cost of items in stock divided by the number of
items in stock. On P.O. and On S.O. simply indicate how much of your inventory is promised on purchase
orders and sales orders.
Get Better Organized
QuickBooks™ lets you create assemblies, groups of items that are sold together as a kit. If you want to
create one, click Lists/Item List, then click the arrow next to Item and click New. Click the arrow under
Type, and select Inventory Assembly. Fill in the blanks on the window as you would for a single item, and
select the individual inventory items in the box at the bottom. This box is pictured in Figure 26.
An item assembly.
Once you've defined your items and assemblies, you can use them in two places primarily: transactions forms
and records. Let's say you're creating an invoice. As you're filling out the form, you'll be able to click
the arrow under ITEM and view a list of the items you've created. Click on one, and the details you've
entered (like price) will appear. Click Reports/Inventory to customize and run the reports available.
Maintaining an adequate inventory-not keeping too much or too little on hand-is critical to your company's
financial balance. QuickBooks' tracking tools can help you meet that ongoing goal.
How to Take the Pain Out
of Paying Your Bills
Settle Up Fast with Quickbooks' Bill Paying Tools
Some of the financial
crystal ball-types are telling us there are signs that the recession
may be drawing some of its last breaths. But those bills are still
coming in, and you may have had a long, dry summer and less income
that you can use to meet those business obligations.
The desktop versions of
QuickBooks™ can help. They can't magically make more money
appear in your coffers, but they can help you manage your bills so
you're always aware of what's coming up and don't
get any nasty surprises. This keeps both you and your vendors happy,
and minimizes the chance of affecting your credit report adversely.
You can also maximize cash flow by being hyper-aware of when each
bill is due and timing them appropriately.
tools are available in all QuickBooks™ versions above Simple Start.)
Enter First, Then Pay
Of course, you can
mimic your old manual method of bill paying by simply using
QuickBooks' check-writing convention. But if you do this, you
risk paying the bill twice. If you follow the process shown in
Figure 27 by entering and the then paying, you'll ensure
that you record the expense in the same period it occurred.
To start, click the
Enter Bills or Vendors/Enter Bills icon. The Enter Bills dialog box
opens as shown in Figure 28. If you received a bill, be sure
that box in the upper right is checked, and that the Bill radio
button is filled in.
find these icons on QuickBooks' graphical flow chart.
Bills dialog box.
Next, click the arrow
next to the Vendor line to select an existing vendor or add a new
vendor. Change the date if necessary, and enter a reference number
(this may avoid confusion later). Then, enter the amount due.
When you initially set
up vendors, you either set up terms for each vendor or accepted the
default. So the Terms field should already be filled in, and will
generate the correct bill due date. Enter a descriptive memo in that
field if you'd like.
Tip: Use the
right-click menu when you're entering bills to see more options.
Since this was an
expense, you'll want to record it as such. Make sure the
Expenses tab is highlighted, and click in the Account field. Click
the arrow that appears to drop down the list, and select the
appropriate expense type. Fill in the rest of the field on the line,
making sure to check the Billable box if this is something you can
bill back to a customer. If the expense needs to be split into
separate categories, create a new line and amount for each. Your bill
now looks something like Figure 29.
Click the Items tab and
fill out the fields there if your expense involves products. You must
have Inventory turned on to do this. Click Save & Close or Save &
New. QuickBooks™ now works in the background, increasing Accounts
Payable and dropping the bill into several reports.
your completed bill entry screen is as complete as possible.
Paying Your Debts
When it's time to
pony up, click on the Pay Bills icon, or click Vendors/Pay Bills.
You'll see a screen similar to Figure 30. Check the radio
button next to the correct preference to view all bills, or to limit
the list to those on or before a specific date. Put a check mark next
to the bill(s) you want to pay. The correct amount should fill in by
default, but you can change this to make a partial payment.
If you want to view the
bill, take a discount, or use credits, click on those buttons. Select
a payment date, method (check or credit card), and toggle to the
correct account if it's not showing.
The Pay Bills
dialog box. Make sit easy to finish the job.
Once you've paid
a bill, your Accounts Payable and checkbook balances decrease, and
the vendor balance and reports are updated. QuickBooks™ stamps a PAID
watermark on the bill to avoid confusion later on.
Tip: To find bills
you've already paid, go to the Vendor Center.
So stop stacking your
bills on an old spindle and ruffling through them every day to see
what's due. You'll find that there are numerous benefits
to using QuickBooks' bill-paying features, such as an improved
credit rating, a dearth of past-due notices, and better cash flow.
4 Ways to Manage Prices in a
We are living in a period of "accelerated change". Indeed, the ground does seem to be shifting beneath us
almost faster than we can comprehend, so it's important to stay nimble in these difficult times.
One way you can do so is to closely manage your prices. In some cases you may need to ratchet your prices
up to cover a commodity cost-spike. Or, you may want to offer special deals to your best customers to help
retain their business.
In this article we'll discuss four methods you can use to manage prices (and change) within QuickBooks.
Create Discount Calculations
Studies have shown that it's far easier to get additional sales out of existing customers rather than from
new customers. Targeted discounts are just one way to try to encourage your customers to buy more.
However, if you do offer a discount, don't just type over your standard prices on the QuickBooks™ invoice,
create a discount calculation instead. This accomplishes two things:
- Your customers see on their invoice exactly how much of a break you've given them.
- You can track how successful your campaign was.
It's easy to set up a discount calculation:
- Choose Lists, and then Item List.
- Click the Item button, and then choose New from the menu (or press Ctrl+N).
- As shown in Figure 31, Choose Discount from the Type list.
- Assign an item name, complete the description field, and then enter an amount or a percentage.
Choose an account from the list-you may wish to create a separate account so that you can easily track
the amount of discounts that you've offered.
Choose Tax or Non-tax to indicate whether the discount is applied before or after sales tax, and then
A discount item allows you to create and track percentage or amount based discounts.
Keep in mind that discounts only apply to the previous row of the invoice or sales receipt. To apply the
discount to multiple items, you must create a Subtotal item:
- Choose Lists, and then Item List.
- Click the Item button, and then choose New from the menu (or press Ctrl+N).
Choose Subtotal from the Type list, and then assign an Item Name and Description, as shown in Figure
Figure 33 shows a multi-line invoice, along with a subtotal and a discount on all of the
A subtotal item allows you to apply a discount to multiple items on an invoice or discount.
Include a subtotal on your invoice when you wish to discount multiple items.
Use Price Levels
Price negotiations are becoming more prevalent and you may find that you have to offer a standard discount
to one or more customers in order to keep their business.
In such cases, you might find the price level feature helpful, so that you don't have to remember to
include a discount item on each invoice:
- Choose Lists, and then Price Level List.
- Click the Price Level button, and then choose New (or press Ctrl-N).
- As shown in Figure 34, assign a name to the price level, such as 10% Discount.
QuickBooks™ Pro users can only establish Fixed % price levels, which are applied globally to all
products. QuickBooks™ Premier and Enterprise users also have the option to create Per Item discounts,
where you can selectively discount only certain items.
- Specify whether to increase or decrease item prices, and optionally choose a rounding method.
Price levels allow you to apply automatic discounts to everything a customer purchases.
Note: You can use price levels to increase or decrease prices.
Change Item Prices
Competitive or other pressures may mean that you need to globally change all of your prices at once.
Fortunately, you can use the Change Item Prices feature to do so:
- Choose Customers, and then Change Item Prices.
As shown in Figure 35, select an Item Type from the list, and then select the items you
wish to change, or click the Mark All checkbox.
Indicate a percentage or dollar amount to increase prices by. This can be based on the current price or
current cost of the item. Enter a positive number to increase the price, or negative number to decrease
Click the Adjust button to see the impact of your changes in the New Price column, and then click OK to
make the changes permanent.
Timesaver: You can also manually fill-in the New Price column if you prefer to make
targeted adjustments to selected items. This is easier than manually opening each item one at a time.
The Change Item Prices feature allows you to adjust multiple prices at once.
Add a Surcharge
We're fortunate that gas prices are currently far less than were they were just a few months ago. However,
who knows how far they may go this summer during peak driving season.
At some point you may need to consider adding a fuel or other type of surcharge to help recover costs
beyond what you've factored into your existing prices:
- Choose Lists, and then Item List.
- Click the Item button, and then choose New from the menu.
- As shown in Figure 36, choose Other Charge from the Type list.
- Assign an item name, complete the description field, and then enter an amount or a percentage.
Choose an account from the list, and then click OK. As shown, you may wish to create a separate account
so that you can easily track the amount you earn from the surcharge.
Important: As with discounts, Other Charge items only apply to the preceding row on an
invoice or sales receipt. Be sure to add a Subtotal item to your invoice if you want the surcharge to apply
to multiple rows of your invoice or sales receipt.
The Other Charge feature allows you to compute fuel and other surcharges.
Billing for Time and
Expenses: How It Works
Billing for inventory parts is easy. Pick the items from a list and specify a quantity. Poof. Done.
Billing for costs, time or mileage is a little more complex. QuickBooks™ has built-in tools to help you do
this, but it's a bit of a process.
To simplify your workflow, do this groundwork first:
Go to Edit | Preferences | Time & Expenses | Company Preferences. Click the Yes button
under Time tracking and indicate your choices under Invoicing options. If you plan to mark
up some costs and want a default number, enter a percentage and account (these can be changed on
As you do with other QuickBooks™ processes, make sure that your Preferences are set correctly.
Add any billing items necessary by clicking Lists | Item List and then Item | New in the
lower left corner.
If you plan to bill for mileage, go to Lists | Customer & Vendor Profile List | Vehicle List
and enter information about every business vehicle.
Invoicing for Services
If you're a service-oriented company, you bill for time frequently. This is easy. You're probably already
familiar with the Enter Time entry in the Employees menu. Whether you make individual time
entries or complete a timesheet, it's critical that you make the correct selections for each Customer:
Job, Service Item and Payroll Item field, and check the Billable box.
When you create invoices, this box will open after you select a customer:
QuickBooks™ lets you know when there are time and costs to be billed for each customer.
You can let QuickBooks™ enter the time totals now, or add them later by clicking the Add Time/Costs
button. Either way, the Choose Billable Time and Costs window opens. Add a checkmark next to each
entry that should be billed, and click Options... to indicate whether you want one line for each time
entry or would rather combine all similar service item types.
QuickBooks™ wants to know which entries should be invoiced.
If you're done with billable expenses for this invoice, click OK. If there are other costs that you
covered, click the Expenses tab to see all transactions that you earmarked for this client on a bill,
check or credit card. You have the option here to mark up the cost by a percentage or amount (even if you
established this in Preferences), and to specify an account.
Do the same for Mileage, which you would have entered previously -- when it was incurred -- at Company
| Enter Vehicle Mileage. Then select any Items that you purchased for the customer. Your records
should be correct, assuming that you were conscientious about assigning expenses to customers and jobs.
It's easy to pull billable expenses into invoices if they're documented carefully.
Turning expenses into invoices and then into income can be complicated. Let us know if we can help. We are
your partner in building a successful business.
QuickBooks™ Tip: Here's a cool little keyboard shortcut. Hit F2 while you're
in QuickBooks, and you'll get the Product Information screen. It'll tell you everything you want to know
about your specific copy of QuickBooks, like your release and license number, the file size, number of users
logged in, audit trail status and the total number of accounts, customers, employees, etc.
QuickBooks™ News Update
Please note that as of May 31, 2012, Intuit is discontinuing support for QuickBooks™ Pro, Premier and
Simple Start 2009, QuickBooks™ for Mac 2009 and QuickBooks™ Enterprise Solutions 9. You can continue to use
these solutions, of course, but live technical support and add-on services like payroll, credit card
processing, online banking and bill-pay will not be accessible. Talk to us about upgrading if you're using
any of these products or services.
Do You Need to Use
QuickBooks' Fixed Asset Tools?
Much of the work you do in QuickBooks™ is short-term. You send an invoice and it gets paid. Your purchase
order is fulfilled, and the products move into your inventory. You run payrolls and submit their related
taxes and other payments.
Managing the life cycle of your fixed assets is an exception. Fixed assets are physical entities that you
purchase to help your business generate revenue, like property, a vehicle or a commercial oven. By
definition, they must be in use for over 12 months.
You'll need our help in depreciating the book value of your fixed assets, but careful recording of them
will make your QuickBooks™ reports, your taxes and your company's worth more accurate.
QuickBooks™ can help you track these, but both the value of your company and your tax obligations--and the
sale price, should you eventually sell them--are affected by how the book value of your fixed assets is
depreciated. It's important that you work closely with us over the life of each one. What you can do on your
own, though, is to maintain absolutely accurate records in this area.
The best time to start recording information about a fixed asset is while you're creating a transaction
related to its purchase. You can build an item record for it as you're filling out the Item section
of Enter Bills, Write Checks, Enter Credit Card Charges or Purchase Order.
Let's say you're writing a check for a new company truck. You'd go to Banking | Write Checks and
fill in the blanks. Click the Items tab below the MEMO field, and then click the down arrow in
the ITEM field. Scroll up to the top of the list if necessary and select add new. You'll see
Keep track of your company's fixed assets by creating item records for them. You can do this as you're
entering transactions for their purchase.
Click on Fixed Asset to open the New Item window.
Transactions Not Required
There may be times when you'll want to create an item record for a fixed asset when you're not processing a
transaction. Such situations include:
- Cash purchases
- Transfer of a personal asset to your company
- Purchase of a fixed asset with personal funds, or
- A multi-item purchase.
To do this, click on the Lists menu and select Fixed Asset Item List. If youÃ¢Â€Â™re adding a
new one, right-click anywhere in the list part of the screen and select New (or click the down arrow
next to the Item button in the lower left of the screen and click New). The same New
Item window that you opened from the check-writing screen appears.
You've already chosen Fixed Asset as the TYPE, so your cursor should be in the Asset
Name/Number field. Enter an easy-to-recognize name so that youÃ¢Â€Â™ll be able to quickly identify it in
reports. Select the correct Asset Account (ask us if you're not sure) and type a description in the
Purchase Description field, clicking the correct button for new or used.
Enter the Date purchased, the Cost and the Vendor/Payee. Don't worry about the SALES
INFORMATION fields until--and if--you eventually sell the asset.
You should be able to complete the New Item window in QuickBooks™ for your fixed assets on your
own, but consult with us on any questions.
Under ASSET INFORMATION, enter the Asset Description (you can write a lengthier description
here), its Location, PO Number if applicable, Serial Number and warranty expiration date. Add
Notes if you 'd like, and you're done--unless you want to incorporate Custom Fields. If so,
click the Custom Fields button in the upper right, then Define Fields.
(We can provide the depreciation and book value numbers under FIXED ASSET MANAGER.)
Your fixed asset records are critical elements of QuickBooks. You may be storing similar information
elsewhere in your office records, but QuickBooks™ needs it, too, so you'll have a comprehensive accounting
of your company's value.
Using Sales Receipts: When and How
How do you let your customers know how much they owe you, and for what products or services? In these days
of ecommerce and merchant accounts, your customers may provide a credit card number over the phone or on a
website. Or perhaps you send invoices after a sale and receive checks or account numbers in the mail.
QuickBooks™ can help you both create the invoices and record the payments.
There's another type of sales document that you can use in certain situations: the sales receipt.
You'd probably be most likely to use one of these when customers pay you in full for products or
services at the same time they receive them.
If you receive full payment for a product or service at the same time the customer receives it, you should
use a sales receipt.
Completing a sales receipt is similar to filling out an invoice or purchase order. Click Create Sales
Receipts on QuickBooks' home page or open the Customers menu and select Enter Sales
Receipts. A screen like the one above will open.
Choose a Customer from the drop-down list and a Class (if applicable). If you have created
more than one Template (more on that later), make sure that the correct one appears in the field.
Verify that the appropriate Date and Sale No. read as they should. Click on the type of
payment you're receiving, and enter the check or credit card number where necessary (a small window will
open for the latter).
Note: If you are working with a type of payment that does not appear in the four icons, click on the arrow
below More to add it.
Now you're ready to select the products or services you sold by clicking on the arrow in the field under
Item to open the available list (if you have not created a record for what you're selling, select add
new and complete the fields in the New Item window that opens). Enter the quantity
(Qty. ). The Rate, Amount, and Tax fields should fill in automatically, based on the
information you entered when you create the item's record.
When you've entered all of the items that the customer is paying you for, you can choose which Customer
Message will appear on the sales receipt (you can see your options in the drop-down list found in the
lower left corner of the screen). Anything you enter in the Memo field will be for your internal use
only; it will not appear on the printed or emailed sales receipt.
Click Save & Close or Save & New.
Customizing Sales Receipts
QuickBooks™ provides tools for customizing forms, including sales receipts.
QuickBooks' forms contain the fields most often used by small businesses. But you can alter them in
numerous ways to meet your company's needs. To customize a sales receipt, open the Sales Receipt
window and click on the Formatting menu. Select Manage Templates.
You'll want to make a copy of the original sales receipt so that the original will always be available.
Click the Copy button in the lower left. "Copy of Custom Sales Receipt" appears in the list of
templates. In the Preview pane on the right, click in the field next to Template Name and
replace the existing name with a new, more descriptive one if you'd like. Click OK.
The Basic Customization window opens. Click on Additional Customization at the bottom of the
screen. You'll see a window like the one in the image above. Click the Columns tab. The list on the
left displays all of the columns that can be included in the body of your sales receipt.
Click in the boxes below Screen and Print to indicate which columns should display on your
QuickBooks™ screen and which should appear on the customer's copy. The numbers in the Order column
can be changed to reflect which column will come first, second, etc.
There's a lot more you can do to customize your QuickBooks™ forms. And there are other situations where you
might want to issue a sales receipt. We've only been able to touch on both topics here, but would be happy
to schedule time with you to explore these elements of QuickBooks.
What Are Payroll Items in
Are you considering processing your own payroll in QuickBooks? Whether you're moving from a payroll service
or getting ready to pay your first employee, you're taking on a complex set of tasks that requires a great
deal of setup and absolute precision. But the reward is complete control over your compensation records and
transactions, and constant access to your payroll data.
If you have no experience dealing with paychecks, deductions, and payroll taxes, we strongly recommend that
you call the office before you get started. While QuickBooks™ simplifies the actual mechanics of setting up
and running payroll, there's still a lot you need to know.
It goes without saying that accuracy is critical here. You're responsible for your employees' livelihoods
and for maintaining any benefits they receive. Federal, state and local taxing agencies will count on you to
submit the proper payroll taxes and filings on time; failure to do so can result in stiff penalties and
A Look Around Payroll Items
That said, here is a brief preview of how QuickBooks™ Payroll Items work. First, make sure that
payroll is turned on. Next, open the Edit menu and click Preferences, then click Payroll
& Employees | Company Preferences.
igure 1: The Company Preferences screen in Payroll & Employees Preferences
Under QUICKBOOKS PAYROLL FEATURES, make sure the button in front of Full Payroll is filled in
by clicking on it. If you're interested in exploring Intuit's online payroll service, someone can tell you
about that, as well as advise you on the other options displayed here.
This element of your accounting is complicated enough that QuickBooks™ has a separate setup tool to guide
you through the myriad details you'll need to provide. You find this tool by going to Employees | Payroll
Setup. This is a multi-screen, wizard-like tool that walks you through the process of providing
information about employees, compensation, benefits and other additions/deductions, and taxes. Each page
poses questions, and you provide answers by entering data and selecting options from drop-down lists. In
doing so, you're creating Payroll Items.
This is a time- and labor-intensive process, one that will send you scrambling for all of the minutiae that
make up your payroll system. Once you have your payroll framework established, though, as we said earlier,
everything will be in one place and easily accessible.
A Useful List
The information you entered in Payroll Setup is likely to change and need modification. Maybe you
forgot to account for something while you were working in the wizard, or perhaps you just want to look up a
bit of payroll data. To do any of these, open the Lists menu and click on Payroll Item List.
You can access this menu from the bottom of the Payroll Item List screen.
The window that opens contains a list of the Payroll Items you created. It looks like a checkbook
register, with one line devoted to each item. You'll be able to view, for example, its Type, any Limit
imposed, the Payable To name, and Tax Tracking designations. At the bottom of this list,
you'll see three drop-down menus: Payroll Item, Activities, and Reports. When you click on the
down arrow next to Payroll Item you'll see the menu displayed in the above image.
Warning: There are many options in this menu for altering Payroll Item definitions. QuickBooks™
allows you to do this, but use caution here. If it involves an action that you are not familiar with, please
call the office for assistance.
This is fairly self-explanatory. To Edit or Delete a Payroll Item or make it Inactive,
highlight it in the list and click on the correct option. You can also Customize Columns in the table
and perform other related tasks. When you click on New Item and select EZ Setup on the next
page, this window opens:
You can add Payroll Items by working your way through this wizard-like progression of screens.
QuickBooks™ will help you here by asking questions and building a Payroll Item based on your
There's much more to know about working with Payroll Items and assigning them to employees. When
you're ready to start processing payroll in QuickBooks, don't hesitate to call the office for help getting
Working with Checks in QuickBooks
"I don't write checks anymore." You hear a lot of people say that these days, and for many consumers, debit
cards, smartphone payment apps, and online banking have all replaced the old paper checkbook.
That's fine if you're at Starbucks or the grocery store, but many small businesses still prefer to issue
paper checks to pay bills, cover expenses, and make product and service purchases. QuickBooks™ provides
tools that help you create, print, and track checks.
But you don't just head to the Write Checks window every time something needs to be paid. There are
numerous times when you would record a payment in a different area of the program. For example, if you've
already created a bill in Enter Bills, you'd go to the Pay Bills screen to dispatch a check.
Once you've recorded a bill in Enter Bills, you need to visit the Pay Bills screen to
dispatch a check. The image above shows the bottom of that screen.
Other examples here include:
- Issuing paychecks (click the Pay Employees icon),
- Submitting payroll taxes and liabilities (Pay Liabilities icon), and
- Paying sales taxes (Manage sales tax icon).
Let's say you asked an employee to go to an office supply store to pick up some copy paper because you ran
short before your normal shipment came in. If you knew the exact amount it would cost, you could write a
check directly to the shop. But the employee agrees to pay for it and be reimbursed.
Click the Write Checks icon on the home page. If the BANK ACCOUNT that's showing isn't the
correct one, click the arrow to the right of that field and select the right one. Unless you've written a
check to that employee before, he won't be in the Vendor list that opens when you click the arrow to the
right of PAY TO THE ORDER OF. Enter his name in that field.
The Name Not Found window opens. If this was a new vendor that you would be working with again,
you'd click Set Up and follow the instructions in the step-by-step wizard that opened. Since this
isn't the case, click Quick Add. In the window that opens, click the button next to Vendor.
Note: If you're using a payroll application, you already have an employee record for that individual, which
would have filled in automatically when you started typing the name. Since this is a Non-Payroll
Transaction, it won't get mixed up with his payroll records as long as you assign the correct account.
If you don't want to create an entire record for the payee of a check, you can just click Quick Add.
QuickBooks™ will then return you to the check-writing screen, where you can verify the check number and
date, and enter the amount. Fill in the MEMO field so you'll remember the reason for the payment.
At the bottom of the screen, you'll see a tabbed register. The Expenses tab should be highlighted
and the amount of your check entered. Click the down arrow in the field under ACCOUNT to open the
list, and select Office Supplies. The AMOUNT should fill in automatically. Not sure which
account to select, and what the remaining three columns mean? Please call the office for assistance.
Note: You would only enter the expense under the Items tab if you were buying inventory items or
paying job-related costs.
Warning: If you're planning to print the check, be sure to check the Print Later box in the
horizontal toolbar at the top of the screen.
When you're finished, save the transaction. Since you want to pay the employee right away, click the Print
Checks icon and click in the field in front of the correct check to select it, then click OK.
Easy, But Tricky
QuickBooks™ makes the mechanics of writing checks easy. Simple as it is, though, a lot can go wrong if you,
- Issue a check from the wrong screen,
- Classify a check incorrectly, or,
- Skip a step.
If you're new to check-writing in QuickBooks™ or are confused about any of its attributes, don't hesitate
to contact the office to set up a learning session with one of our QuickBooks™ professionals.
What Sales Orders Are and
When to Use Them
When you want to document sales that you can't (or won't) fulfill immediately, but you plan to do so in the
future, you can't create an invoice just yet. This is where sales orders come in.
You may never need to create a sales order for a customer. Perhaps you have a service-based business, or
you never run out of inventory. Or you simply don't enter an order unless you know you have the item(s) in
But if you plan to use sales orders, you must first make sure QuickBooks™ is set up to accommodate them.
Open the Edit menu and select Preferences, then Sales & Customers. Click the Company
Preferences tab to open that window.
Before you can use sales orders, you'll need to make sure that QuickBooks™ is set up for them.
Sales Orders Are Required for Some Tasks
There are a few situations where you must use a sales order:
If you have a customer who orders very frequently, you may not want to create an invoice for absolutely
every item. You could use a sales order to keep track of these multiple orders, and then send an invoice
at the end of the month.
If you're missing one or more items that a customer wanted, you can create a sales order that includes
everything, but only note the in-stock items on an invoice. The sales order will keep track of the portion
of the order that wasn't fulfilled. Both forms will include the back-ordered quantity.
Warning: Working with back orders can be challenging. In fact, working with inventory-tracking itself may
be problematic for you. If your business stocks enough of multiple types of items that you want to use those
QuickBooks™ features, let us help you get started to ensure that you understand these rather complex
Creating a Sales Order
Creating sales orders in QuickBooks™ is actually quite simple and similar to filling out an invoice. Click
the Sales Orders icon on the home page, or open the Customers menu and select Create Sales
A sales order in QuickBooks™ looks much like an invoice.
Click the down arrow in the field next to Customer: Job and choose the correct one. If you use Classes,
select the correct one from the list that drops down, and change the Template if you've created
another you'd like to use.
Tip: Templates and Classes are totally optional in QuickBooks. Templates provide alternate
views of forms containing different fields and perhaps a different layout. Classes are like categories. You
create your own that work for your business; they can be very helpful in reports. Please call the office if
you need help understanding these concepts.
If the shipping address is different from the customer's main address, click the down arrow in the field
next to Ship To, and either select an alternate youÃ¢Â€Â™ve created or click add new. Make
sure the Date is correct, and enter a purchase order number (P.O. No.) if appropriate.
The rest of the sales order is easy. Click in the fields in the table to make your selections from
drop-down lists, and enter data when needed. Pay special attention to the Tax status. Let us know if
you haven't set up sales tax and need to.
When everything is correct, save the sales order. When you're ready to convert it to an invoice, open it
and click the Create Invoice icon in the toolbar. QuickBooks™ will ask whether you want to create an
invoice for all the items or just the ones you select. You'll be able to specify quantities, too, in the
window that opens.
When you create an invoice from a sales order, you can select all the items ordered or a subset.
As we've said, sales orders are easy to fill out in QuickBooks. But they involve some complex tracking, and
you may want to schedule a session with us before you attempt them. Better to understand them ahead of time
than to try to troubleshoot problems later.
All about Sales Receipts in
You know how important it is to obtain receipts for the expenses you and your employees incur. You need to
record them, analyze their impact on your cash flow, and claim some of them on your income taxes.
Your customers, too, expect to receive forms documenting purchases they've made from you. When they pay you
immediately for goods or services, you'll give them a sales receipt, rather than invoicing them for future
remittance. Not only will your customers have a record of the transaction â?? you will, too.
QuickBooks™ supports the creation and tracking of sales receipts. It manages the mechanics of this
important task incredibly well and eliminates the need to enter receipt data twice, once on a paper copy for
your customer and again in your accounting system. This QuickBooks™ feature not only minimizes errors, but
saves time and lessens the possibility of disputes down the road.
A Simple Form
Here's an example of a situation that illustrates the importance of really learning about and understanding
QuickBooks™ before you start entering live data. Say you got a check from a customer on the spot for a house
painting job you completed. When you look at QuickBooksâ?? home page, which icon do you click?
You might be tempted to click Receive Payments, since that's exactly what you are doing.
But that screen is reserved for revenue that comes in to satisfy outstanding invoices and unpaid items on
billing statements. Instead, you would click Create Sales Receipts to open the Enter
Sales Receipts window. Here's a partial view of what you would see:
When a customer pays you immediately for goods or services, you need to open and complete the Enter
Sales Receipts window.
If you've already entered your customer and item/service records in QuickBooks, you can record your sale
very quickly here. Even if you haven't, or if you need to create a new record on the fly, you can select
add new when you open the drop-down option lists for the Customer:Job and
Warning: Do you need to track inventory levels for products you sell? Have you created
thorough records for these items? There is information that QuickBooks™ needs to help ensure that you don't
run out of stock or keep too much on hand. Let us walk you through the software's inventory-management tools
so you can take advantage of all the benefits they offer.
Once you've selected the appropriate customer, Class (if you use this feature), and
Template (Here again, do you understand that you can either use the default sales receipt
form provided by QuickBooks™ or customize it? We can help here), make sure that the Date
and Sale No. are correct.
Next, click on the icon representing the transaction's payment method, choosing from Cash, Check,
Credit Card, or eCheck. Click the More button if your method
isn't listed there. Here, you can add new options by selecting Add New Payment Method. A
small window will open allowing this. If you want to modify this list further by editing and deleting the
default methods for example, simply clear and close the current sales receipt, and then open the Lists
menu, and select Customer & Vendor Profile Lists | Payment Method List. This window
Click the down arrow in the Payment Method field near the bottom of this window to see
your modification options.
Once you have chosen the desired Payment Method (and entered a check number if necessary),
complete the rest of the sales receipt much like you would an invoice, by selecting the correct products or
services, the quantity you are selling, and the transaction's tax status. QuickBooks™ will fill in the rest
if you 've created complete item records.
When you are done save the sales receipt. Information about the transaction will be available in standard
places like the Customer Information screens and various reports.
Whether your revenue is generated instantly (i.e., documented by a sales receipt) or as longer-term payment
on an invoice, your company's income is just one element of the cash flow equation. Are you able to create
and interpret the reports that can help you understand these complex calculations, like Cash Flow
Forecast and Profit & Loss? You probably run some of QuickBooks' more basic
sales reports regularly, but consider bringing in a QuickBooks™ expert to do the deep analysis needed to
make better business decisions.