O.k. so Intuit has convinced you how easy QuickBooks is to use and you have decided to go on out with your $200 and invest in the do it yourself bookkeeping program that they have convinced you that even a trained monkey could use. You opened up that little green box and installed it on your computer. You entered your company name and then it stopped being easy. QuickBooks asked you a question “are you on a cash or accrual basis?”.
What is cash basis? What is accrual accounting? If you can’t answer that question step away from the little green box.
Now don’t be discouraged. You can still do your own books. You’ll just need a little education and a little advice upfront. There is nothing more frustrating than finding out that you made a decision early on that is hurting you later, or worse putting in hours on a project to find out that you started from the wrong place and need to redo it all.
5 things you need to understand before you set up your QuickBooks but that Intuit doesn’t put on the box under “Read and Understand Before Opening“:
1. Bookkeeping and Accounting is the story of what happened with the money. Where did it come from and where did it go. You are the author of this story and you can tell it in a couple of different ways.
2. Once you pick a perspective for your story (cash method or accrual method) you will need to stick with it. This isn’t fiction.
3. Bookkeeping on a cash basis records the story based on when the cash comes and goes. Income is recorded when it is deposited. Expense is recorded when you pay. Bookkeeping on an accrual basis records income and expense when that income or expense is accrued (earned or incurred) not necessarily when the cash was received or spent. On an accrual basis income would be recorded when you provide the services not when you get paid.
4. If you prepare your books in QuickBooks on an accrual basis you can always view reports on a cash basis for management purposes, but if you prepare your books on a cash basis you CANNOT review reports on an accrual basis.
5. There are requirements and recommendations for certain business types regarding your accounting method. Check with your accountant if you are not sure what method you should be using.