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QuickBooks makes it easy to get started because it has a lot in common with
other programs you use, like dialog boxes, windows, and choosing from dropdown lists.
However, to make bookkeeping in QuickBooks or any other accounting program as
painless as possible, it helps to understand a few basic accounting concepts.
Everything starts with what's called double-entry accounting.
In every transaction, money comes from somewhere and goes somewhere.
Think about when you pay your credit card bill. The check you write takes money
from your checking account to pay the balance on your credit card account.
In QuickBooks, accounts are how you keep track of your company finances.
These accounts all live in what's known as a Chart of Accounts, but not
just bank accounts. Accounts come in different flavors: income
for the money you make, expense for the money you spend and several other types,
which you'll learn about later. Then there is cash accounting and accrual
accounting. Here is a typical business scenario.
You hire a vendor to do billable work from January 2nd to January 15th.
The vendor sends you a bill, which you record in QuickBooks on January 31st.
You also invoice your customer on January 31st.
That's your big paperwork day. You pay the vendor for this work here on February
28th and finally your customer pays you on April 6th.
Your books reflect income from the customer and the vendor's expense differently
in cash and accrual accounting. Cash accounting is easy.
Expense show up when you pay for products or services here on February 28th
when you pay the vendor. Income shows up when you receive payment from
a customer, in this example on April 6th. Notice that the expanse occurs in the first
fiscal quarter, but the income doesn't show up until second fiscal quarter.
Accrual accounting puts income and corresponding expenses in the same period,
no matter when cash goes in or out. That way it's easier to see profitability.
Expense occurs as soon as you enter a bill, here January 31st, and that's no
matter when you pay the bill. Income occurs when you record a customer invoice,
and that's January 31st. It doesn't matter that your customer pays
in the next fiscal quarter. In this example, the income and expense appear
during the same fiscal period. Now that you understand how QuickBooks uses
accounts in cash or accrual accounting, you can start keeping your books
in QuickBooks.