post

Accounting Basics Part 4: How to Enter Transactions in QuickBooks

So you have QuickBooks, you have set up the Chart of Accounts, and entered your Opening Balances; now I will share with you how to enter transactions in QuickBooks. You will need to have your bank accounts, credit cards, Paypal account, and loans entered into your Chart of Accounts before you go forward with this, so make sure you are caught up to speed with my previous posts. We will review how double-entry bookkeeping works, where the transactions are coming from and going to, and how to verify your transaction is entered correctly.

Double-Entry Bookkeeping

Double-Entry Bookkeeping is a foundational principle that is an outflow from the accounting equation of Assets = Liabilities + Stockholder’s Equity. When you enter a transaction, you enter both sides of the equation to keep the accounting equation in balance. The following is taken from: Kimmel. Financial Accounting: Tools for Business Decisions, 5th Edition. John Wiley & Sons.

Each transaction must affect two or more accounts to keep the basic accounting equation in balance. In other words, for each transaction, debits must equal credits. The equality of debits and credits provides the basis for the double-entry accounting system. Under the double-entry system, the two-sided effect of each transaction is recorded in appropriate accounts. This system provides a logical method for recording transactions. The double-entry system also helps to ensure the accuracy of the recorded amounts and helps to detect errors.

The good thing is that double-entry bookkeeping is easy to work with in QuickBooks when entering transactions.

Transactions

When you go to enter transactions in QuickBooks, the first thing you have to answer is where your transactions are coming from and going to. In most instances, when you enter data you are entering it from some kind of bank or credit card statement. This tells you one side of the equation. The other side could be income, expenses, fixed assets, transfers to another bank account, etc. When you receive your bank statement, go to the checking account as follows:

Start at the beginning and enter the transactions. Two examples would be $50 for office supplies at Office Max on 8/1/12, and a deposit from Merchandise Sales from a Customer of $200 on 8/3/12. The transactions would be entered in the Checking register as follows:

Verifying Transactions

When you first start entering transactions, it is a good idea to verify that the transactions are going to the right accounts with the right balances. You have two options for verifying these transactions: bank reconciliations and reviewing the Balance Sheet and Profit & Loss detail reports. I will save the bank reconciliations for a later post, but for now I will have you run the reports. Take the date ranges for the transactions you entered and run the Balance Sheet and Profit & Loss detail reports for those dates. Find these reports by going to: Reports -> Company & Financial. For the above transactions, I will run the reports for August, 2012 as shown below:

What you are looking for here is if the expense and income accounts are increased for the expenses and income you recorded, and that the bank account balance accurately reflects these transactions as well. If you enter an expense and the expense account decreases, then you probably got that transaction wrong and need to go back and check it again.

Next time I will go through actually completing a reconciliation and what you need to understand in order to complete the data entry cycle. I hope this helps you get started with entering transactions into QuickBooks and getting things running! If you have any questions, please let me know and I will be happy to help you out.

Keep Reaching!

Mark

Speak Your Mind

*

HTML tags are not allowed.

  • RSS
  • Facebook
  • Google+
  • LinkedIn
  • Twitter
  • YouTube