Skailit - QuickBooks Online Refresher Course

2.1 Initial Company Setup in QuickBooks Online

When creating a new company in QBO, focus on these critical settings:

1. Company Information: Legal business name, address, phone, and email (appears on invoices and tax forms)
2. Business Type & Industry: QBO suggests relevant accounts and tax settings based on your selection
3. Features to Enable:
   • Invoicing and sales tracking
   • Expense tracking and bills
   • Sales tax (HST/GST in Canada)
   • Inventory (if applicable)
   • Projects (for job costing)
4. Fiscal Year: Most Canadian businesses use January–December (calendar year)
5. Accounting Method: Accrual (required for corporations) or Cash (allowed for small businesses)

Accessing Company Settings

2.2 The Chart of Accounts – Your Financial Roadmap

Two Critical Settings for Every Account:

• Account Type — Controls where the account appears on financial statements (Assets, Liabilities, Equity, Income, Expenses)
• Detail Type — Provides specific categorization within the Account Type (helps with reporting but doesn't change financial behavior)

The Six Main Account Types in QBO:

• Bank (chequing, savings accounts)
• Accounts Receivable (customer invoices not yet paid)
• Other Current Assets (HST Receivable/ITCs, Prepaid Expenses)
• Fixed Assets (Equipment, Vehicles, Buildings)
• Other Assets (Long-term investments)

• Accounts Payable (vendor bills not yet paid)
• Credit Card (business credit cards)
• Other Current Liabilities (HST Payable, Payroll Liabilities - CPP/EI/Income Tax)
• Long Term Liabilities (Loans, Mortgages)

• Owner's Equity / Capital
• Owner's Drawings (contra-equity)
• Retained Earnings (auto-generated, cumulative profits)

• Sales Revenue (product sales)
• Service Income (service revenue)
• Other Income (interest, miscellaneous)

• Materials, Direct Labor (for product-based businesses)
• Subcontractors, Shipping costs

• Operating expenses (Rent, Utilities, Salaries, Office Supplies)
• Administrative expenses (Professional Fees, Insurance)
• Depreciation, Interest Expense

2.3 Sample Canadian Chart of Accounts

2.4 Creating New Accounts in QBO

Step-by-Step Process:

1. Go to Gear Icon → Chart of Accounts
2. Click New button
3. Select Account Type (most important choice)
4. Choose Detail Type (for specific categorization)
5. Enter Name (be descriptive and consistent)
6. Add Number (optional but recommended)
7. Check Sub-account box if grouping under parent
8. Enter Description (helps other users understand purpose)
9. Click Save and Close

Simulation: Creating Office Supplies Account

2.5 Best Practices for Chart of Accounts

Keep It Simple and Organized:

• Avoid over-complication: Don't create separate accounts for every tiny expense (use one "Office Supplies" instead of "Pens," "Paper," "Staples")
• Use sub-accounts wisely: Group related items (Utilities parent with Electricity, Internet, Water subs)
• Follow naming conventions: Be consistent (don't mix "Office Supplies" and "Supplies - Office")
• Enable account numbers: Helpful for larger businesses and reports
  • 1000-1999: Assets
  • 2000-2999: Liabilities
  • 3000-3999: Equity
  • 4000-4999: Income
  • 5000-5999: Cost of Goods Sold
  • 6000-7999: Expenses

Canadian-Specific Setup:

• Create HST Receivable (Other Current Assets) for Input Tax Credits
• Create HST Payable (Other Current Liabilities) for tax collected
• Set up Payroll Liabilities accounts: CPP Payable, EI Payable, Income Tax Payable
• Consider separate accounts for different revenue streams if tracking provincial sales

Maintenance Tips:

• Make accounts inactive instead of deleting (preserves history)
• Never delete reconciled accounts (breaks audit trail)
• Review quarterly: Merge duplicates, inactivate unused accounts
• Consult your accountant before major changes
• Document custom accounts: Add descriptions so others understand purpose

2.6 Sub-Accounts – Organizing for Better Reporting

Sub-accounts create hierarchy in your Chart of Accounts. They roll up into parent accounts on reports.

Example: Utilities Structure

When to Use Sub-Accounts:

• Multiple expense categories under one heading (Utilities, Vehicle Expenses, Professional Fees)
• Department or location tracking within account types
• Different product/service lines within revenue
• Fixed assets by category (Equipment, Vehicles, Furniture)

Creating a Sub-Account:

2.7 Advanced Features – Classes and Locations

Beyond the Chart of Accounts, QBO Plus and Advanced offer additional tracking dimensions:

Classes (Department/Division Tracking)

• Track profitability by business line (Consulting, Training, Products)
• Separate departments (Sales, Operations, Admin)
• Project types or service categories
• Generate P&L by Class to see which areas are profitable

Locations (Geographic/Physical Tracking)

• Multiple office locations (Toronto, Vancouver, Montreal)
• Retail stores or warehouses
• Different facilities or buildings
• Generate reports by Location for each site's performance

Enabling Class/Location Tracking:

Then create your Classes/Locations:

2.8 Special Accounts to Understand

Auto-Generated Accounts (Don't Edit These):

Contra Accounts (Negative Balances):

• Accumulated Depreciation: Contra-asset (credit balance) that reduces asset value
• Allowance for Doubtful Accounts: Contra-asset for estimated uncollectible receivables
• Owner's Drawings: Contra-equity (debit balance) that reduces equity
• Sales Returns & Allowances: Contra-revenue (optional, tracks refunds/discounts)

2.9 Common Setup Mistakes to Avoid

• ❌ Using personal bank accounts instead of dedicated business accounts
• ❌ Over-complicating the COA with 100+ accounts for a small business
• ❌ Not enabling HST/GST during initial setup (hard to fix later)
• ❌ Deleting accounts that have been reconciled or have historical transactions
• ❌ Creating duplicate accounts with similar names (Office Supplies vs Supplies - Office)
• ❌ Wrong Account Type selection (choosing Expense when it should be Asset)
• ❌ Not using sub-accounts, creating flat messy lists
• ❌ Making changes without consulting accountant
• ❌ Not documenting custom accounts with descriptions

2.10 Account Numbers – Optional but Recommended

Account numbers help organize and sort your Chart of Accounts consistently.

Standard Numbering System:

Enabling Account Numbers:

2.11 Quick Self-Check

Q1: What is the most critical setting when creating a new account?

✓ Account Type (determines financial statement placement)

Q2: Should you delete unused accounts from QuickBooks?

✓ No — make them inactive instead (preserves history)

Q3: What are sub-accounts used for?

✓ To group related accounts under a parent for better organization and reporting

Q4: What is the Chart of Accounts?

✓ Complete list of categories used to classify and organize all financial transactions

Q5: How do you organize Utilities expenses properly?

✓ Create parent "Utilities" account with sub-accounts for Electricity, Water, Internet, etc.

Q6: What account numbers are typically used for Assets?

✓ 1000-1999 range

Q7: Why enable HST/GST during initial setup?

✓ Ensures proper tax tracking from day one; difficult to fix later

✓ Module 2 Complete

You've learned:

• How to set up a new company in QBO
• Purpose and structure of Chart of Accounts
• Six main account types and their uses
• How to create and organize accounts properly
• Sub-accounts for hierarchical reporting
• Classes and Locations for advanced tracking
• Special accounts (Retained Earnings, contra accounts)
• Account numbering system
• Common mistakes to avoid
• Canadian-specific setup requirements (HST tracking)