10 Tips for Setting up Your QBO File for the first time

The idea of using an accounting software can be a bit intimidating for some new business owners. Others are put off by the cost when a spreadsheet is both free and straightforward. While a spreadsheet makes sense when you have a simple business with very few transactions per year, accounting software has significantly more functionality. You can invoice your clients and customers , analyze the performance of the business, reduce the amount of manual data entry that your current accounting system requires and access your transaction history. If your time is at a premium, and you don’t have a lot to spare, the monthly cost of an accounting software can be well worth it.

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Quickbooks Online (QBO) is the most popular software used by small businesses. And while QBO has its pros and cons that should be evaluated before signing up, once you have decided to go ahead with it there are certain best practices that should be followed when setting up your file.

Choose which version of QBO is best for your situation

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There are currently 3 versions of QBO in Canada:

1. EasyStart

2. Essentials

3. Plus 

Each version has different functionality which needs to be reviewed to determine which one is best for your business.  Some of the important feature differences are listed below: 

QBO features available in Essentials and above:

• Setting up bills which allows you to pay suppliers at a later date

• More than one user to access your file (not including an accountant)

• Invoicing customers or suppliers bills from other countries that require foreign currencies

• Time tracking for yourself or employees 

QBO features available in Plus Only:

• Tracking inventory

• Creating separate divisions or locations or any another metric which you would like to report on distinctly

• Tracking specific project profitability

If you do not require any of the above features, you can sign up for the “EasyStart” version of QBO.  Upgrading to a higher version is very simple as your business grows or the need for one or more of these features arise.

Customize your QBO file Using the Gear Icon.

Once you have signed up for QBO, you will be prompted to enter some information about your business.  The information you enter can always be changed at a later date so don’t be afraid to enter the whatever information you think is most appropriate in your current situation.

After you have completed the questionnaire from QBO,  the first thing you should do is go to the gear icon on the top right hand side of the interface. This will take you to your company settings where you can customize various aspects of your business.  Go through each tab on the left hand side and review the options.  Again, you don’t necessarily have to decide on everything at this stage but it is always productive to familiarize yourself with the various options if and when the need arises .

Determine Accounting Method: Cash vs accrual basis

In the advanced tab, one of the options that you must select is the type of accounting method your business is going to use. There are two options here – accrual or cash.  The accrual method means that all transactions are recognized when they occur rather than when payment is received.  For example if you invoice a customer for your services on May 31st but only receive payment on July 15th, the income from the invoice is recorded on May 31st.  With the cash method the income would only be recognized on July 15th.  This also applies to bills owing to suppliers.   

It should be noted that most businesses use the accrual method.  The only businesses that Revenue Canada allows to use the cash method are farmers, fishers, or self-employed commissioned sales agents

Enter First month of the fiscal year

If you are a sole proprietorship, the first month of your fiscal year will almost always be January 1st.  As a corporation, the first month of your fiscal year will depend on your year end date.  This can be found by looking at your business’ year end financial statements or corporate tax return.  If this is your first year in business, then you have determine the year end that was established at the time of incorporation.  If no year end was set up,  my advice is to choose the end of the month preceding the date of the corporation.  For example if your corporation was set up on May 15th, you can set your year end at April 30th.  Note that once selected, all future tax filings will reflect this as your year end date.  A final option is to keep it simple and choose December 31st. 

Customize your sales invoices. 

To customize the format of the sales invoices that your customers are going to see, go to the gear section and click on “custom forms and styles”

You can upload your logo (this can also be done in the “accounts and settings” section)

In Canada, you are required to reflect your sales tax numbers, issued to you by CRA or RQ, if you are registered for GST/HST and/or QST.  These numbers are entered when you set up your sales tax (see section below)

You can also choose various formatting options to suit your aesthetic sensibility or simply reflect the important information that you want your customers to see on their sales invoices.

Set up Products and Services

Sales invoices require that you enter a product or service, which then connects to an account on your profit-loss statement.  This means that you can enter the different types of products and/or services that you offer which are what customers see on the invoice.  Each product and/or service can then be mapped to one account eg. sales or you can set up different types of income accounts (that would show up on the profit loss statement - see chart of accounts below).  To create products and services go to the gear and click on “products and services”.  The other advantage of setting up distinct products and services is that you can generate reports for each that can provide valuable information for analysis.

Set up your chart of accounts

Usually, QBO will prepopulate a chart of accounts depending on the information you provide at set up.  The chart of accounts establishes the structure that your reports will take and is specific to each business.  See our article for more details on customizing your chart of accounts

Set up existing customers and suppliers

If you already have customers/clients and suppliers you can set them up right away. 

For customers, you would go to the invoicing tab on the left hand side and click on “customers”.  Once there, click on “new customer” on the top right (big green button) and enter the information that is pertinent. There are various details that you can enter including contact info, tax information, how they pay you, notes and attachments.  In the Plus version of QBO you can also assign a category for more advanced reporting.

Similarly for suppliers/vendors, you would go the expenses tab and choose “suppliers”.  QBO also allows you to choose a default expense category for the supplier which will populate every time you create a bill. 

Connect your banking

One of the most powerful features of QBO is the ability to connect your bank and credit accounts so that it downloads the transactions automatically.  Once downloaded, the transactions still have to be allocated but it reduces the amount of manual data entry significantly.  QBO supports all major banks and many minor ones.  It is important to check on the download regularly as sometimes it stops working which can cause various issues.

To connect your bank account, go to “transactions” on the left hand side and select banking.  You would then select the “link account” button and follow the instructions to connect your bank and/or credit card.

Set up Sales Tax

Canadian businesses who are registered for GST/HST and QST need to set up sales taxes in QBO.  This is another powerful feature that allows you track sales taxes on all transactions and generates a report for each sales tax reporting period that can then simply be transcribed on to your GST/HST and/or QST report (whether you file it online or mail it in).

Sales tax can be accessed by clicking on the “taxes” tab on the left hand side.  QBO will prompt you to enter your province after which it will ask you for your sales tax numbers (available from the confirmation of your registration from Revenue Canada and Revenue Quebec and ends with RT0001 and TQ0001 for Quebec).  The numbers, once entered, will automatically populate on your sales invoices (if you don’t see them, it is likely an issue with the customization of the invoices )

Since different provinces charge different amounts of GST/HST and QST, you can add the sales tax for each province.  There is also an option to add PST if you are registered in provinces such as Manitoba, Saskatchewan and BC. 

Once you have gone through the steps above, you will have a better understanding of the primary functionality of  Quickbooks and be ready to start entering transactions.  Almost everything can be changed or fixed so while it is best to set it up as accurately as possible in the beginning, know that you aren’t necessarily stuck with the choices you make at the outset. 

Are you planning to start using QuickBooks Online for your small business? Download our free QBO set up checklist and check out our comprehensive QBO guide for beginners.

Ronika Khanna is an accounting and finance professional who helps small businesses achieve their financial goals. She is the author of several books for small businesses and also provides financial consulting services.