Setting Up Your QuickBooks Online® Company – Part Two

You may still be determining whether you should convert your existing QuickBooks Desktop file, or start a new QBO file from scratch, in which case I recommend you check out our most recent Insightful Accountant article, 'Setting Up Your QBO Company – Part One' which addressed which QBO version you should choose.

For those of you who have leapt excitedly off the fence and started setting up your company file from scratch, let’s talk about choosing a start date, creating a structure, entering open transactions, and planning how to approach daily tasks.

Choosing a Start Date

Carefully choose an appropriate Start Date to begin using QuickBooks Online. The Start Date has an impact on the accuracy and level of detail in your QuickBooks Online reports. The Start Date also signifies how much historical data you will have to enter.

Your options are:

  1. Choose a Start Date that represents the first day of your fiscal year. If your business is new, you won’t have many transactions. If it’s still early in the year, it shouldn’t be too difficult to reconstruct the history.
  2. Choose a Start Date that represents a milestone accounting period (end of quarter, end of month, etc.). Enter a Journal Entry for period totals before that date, transactions still pending from before that date, and ALL transactions after the date.

Setting up the File

The steps in setting up a fresh QBO file include adjusting settings, creating your Lists, connecting the Banking Feed, and entering in all open current transactions so that you have what you need for your day-to-day operations moving forward.

Here, I’m providing an outline of what’s involved when setting up the new file. Instructions for all these steps will appear in future articles.

1. Adjust the Settings:

Visit Account and Settings to turn on and off the features you need.

2. Create your Chart of Accounts list:

Your Chart of Accounts contains all the income, expense, equity, asset, and liability categories for your company. It’s the fundamental structure for your company file, and needs to be refined before you do anything else.

3. Create your Products and Services list:

Your Products and Services are the items you charge to Customers. They appear on all Invoices & Sales Receipts, and can be used for Purchasing and Expenses as well.

4. Enter open Customer Invoices:

Enter all open unpaid Invoices with the date they were originally created, so that when a Customer pays, you know what they’re paying for! It’s fine if the date is before your Start Date.

5. Enter Vendor bills:

(Note: This step is for users of QBO Essentials, Plus and Advanced only). Enter unpaid Vendor Bills and Vendor Credits using the dates of the original transactions. Be sure to use Products and Services in the bottom Items section if you purchased goods or labor.

6. Connect Banking Feeds:      

When you set up your bank accounts and connect them using your web login, QBO imports your bank history. Every bank is different, so you’ll be able to import somewhere between 30 days and two years’ worth of transactions. If you need transactions further back, upload a manual export from your bank’s website. Your history is then available for easy entry into QBO.

Entering Historical Transactions

Now that open and current Customer and Vendor transactions are entered, it’s time to create any remaining historical data. As we’ve discussed prior, when you get started with a new QuickBooks Online file, you have a choice to either enter every single transaction after your start date, or to enter monthly summary Journal Entries until you’re caught up.

If you're entering all historical transactions, which is the route most companies take, recreate them one month at a time and reconcile all bank accounts before going to the next month. Use the Banking Feed as your guide!

If you decide to enter summarized histories, refer back to your previous copy of QuickBooks (or other accounting software). Run month-by-month Profit and Loss Reports.

Create a Journal Entry (+ > Journal Entry) for each month listing the total Income and Expenses for every category in your Chart of Accounts. Use Opening Balance Equity (OBE) to offset the grand total. When you’re done, transfer the OBE balance to Retained Earnings to zero it out.

Summarized Histories are particularly useful for entering data from the fiscal year before your QuickBooks Online file’s start date. It’s optional and potentially time-consuming, but it allows you to compare your company’s growth to the year before you got started with this QBO file.

Next Steps

I know this is a lot of technical info all at once. You may be feeling overwhelmed, but rest assured that it will make sense when we dive into the nitty-gritty. Our next article is all about Account and Settings to set up your preferences. Watch for next week’s “Setting Up Your Company – Part Three”.

Note: if you’re really excited to get going on all these steps today, check out our complete video tutorial library at the Royalwise website.