Basic Accounting for QuickBooks Part 2

Connecting Basic Accounting to QuickBooks: Put Your Accounting 101 to Use

In this episode of QuickBooks Mastery for Small Business Success, Lee Davis and Erica Northrup build on the accounting concepts discussed in the previous episode and explain how those concepts connect directly to QuickBooks.

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Many business owners understand some basic accounting terminology, but they struggle to apply that knowledge inside QuickBooks. According to Lee, part of the challenge is that QuickBooks uses its own terminology and workflows, which can make the software feel overwhelming.

Everything Starts With the Chart of Accounts

At the center of QuickBooks is the Chart of Accounts.

This is where all of your:

Assets
Liabilities
Income
Cost of Goods Sold
Expenses
Equity accounts

are organized and tracked.

The chart of accounts forms the foundation for your bookkeeping and reporting. If it’s not structured correctly, your financial reports will not be accurate.

Common Problems With the Chart of Accounts

Erica and Lee highlight several issues they frequently see when reviewing client books.

Too Many Accounts

One common mistake is creating far too many accounts.

This can make reports:

Difficult to read
Inconsistent
Harder to analyze

A practical solution is to use your Schedule C as a guide for categorizing transactions.

Duplicate Accounts

Duplicate accounts create confusion and inconsistent reporting.

For example:

Multiple office supply accounts
Several versions of the same expense category

Keeping a master list of accounts helps maintain consistency and avoid duplication.

Mixing Personal and Business Expenses

Another common problem is blending personal and business spending together.

This makes:

Tax preparation more difficult
Reporting less reliable
Financial analysis less accurate

Keeping personal expenses separate is essential for clean bookkeeping.

Misclassifying Owner’s Draw

Many business owners incorrectly categorize Owner’s Draw as a business expense.

However, an Owner’s Draw is part of equity—not an expense.

Misclassifying owner compensation can distort your Profit & Loss Statement and create confusion during tax preparation.

Payroll Setup Problems

Payroll is another area where errors frequently occur.

According to Erica and Lee, payroll is often handled incorrectly because users misunderstand how payroll-related liabilities and expenses should be tracked.

Improper payroll setup can affect:

Tax reporting
Payroll liabilities
Financial statements

Incorrect Loan Setup

Loans must also be structured correctly in QuickBooks.

If loan accounts are not properly configured:

Principal and interest may be combined incorrectly
Liabilities may not appear accurately
Businesses could miss valuable deductions

Proper setup ensures your reports accurately reflect both debt and expenses.

Categories Are the Backbone of Bookkeeping

One of the key themes of this episode is that categories drive everything in QuickBooks.

If transactions are categorized incorrectly:

Reports become unreliable
Profitability becomes harder to measure
Decision-making becomes more difficult

Clean categorization creates clearer financial visibility.

Where Expenses Show Up

Expenses appear primarily on the Profit & Loss Statement.

In QuickBooks, expenses are typically created through forms such as:

Bills
Expenses
Checks

Using the correct form helps ensure accurate reporting.

Where Income Shows Up

Income also appears on the Profit & Loss Statement.

Income is generally created through:

Invoices
Sales receipts
Customer payments

Businesses may separate income into categories such as:

Services
Products
Other revenue streams

Breaking income down properly provides better insight into profitability.

Where Liabilities Show Up

Liabilities appear on the Balance Sheet.

Common liabilities include:

Credit cards
Loans
Lines of credit
Accounts payable

These accounts represent money the business owes.

Understanding Equity

Equity accounts may include:

Owner’s Draw
Retained Earnings
Owner Contributions
Current Year Profit

Equity reflects the owner’s financial interest in the business after liabilities are considered.

What Appears on the Balance Sheet But Not the Profit & Loss?

Some financial information appears on the Balance Sheet but not on the Profit & Loss Statement.

Examples include:

Cash
Accounts receivable
Debt
Accounts payable

That’s because the Balance Sheet focuses on the overall financial position of the business—not just income and expenses.

Understanding the Balance Sheet

The Balance Sheet is a snapshot of the business at a specific moment in time.

It shows:

Assets
Liabilities
Owner Equity

Together, these numbers help business owners understand what the business owns, owes, and is worth.

Final Thoughts

With this episode, Erica and Lee connected what we learned in the last podcast on basic accounting to QuickBooks. This was a great way to review the “foreign language” of accounting. I look forward to the next episode, which will continue where they left off with this episode.

If you liked the podcast, you will like our training course. Click on the link below to join our upcoming course.

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The Three QuickBooks Workflows

The Three QuickBooks Workflows Every Business Owner Should Understand

In this episode of QuickBooks Mastery for Small Business Success, Lee Davis and Erica Northrup discuss three essential workflows that help keep your QuickBooks organized and accurate.

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According to Erica and Lee, one of the biggest reasons QuickBooks becomes messy is that people often learn bookkeeping processes incorrectly from others. Over time, those small misunderstandings create larger financial problems.

The key is finding a system that works—and using the correct forms consistently.

Why Workflows Matter

Your financial workflows determine how money moves through your business and how accurately that activity is reflected in your reports.

If workflows are inconsistent:

Transactions get duplicated
Reports become inaccurate
Cash flow becomes harder to track
Decision-making becomes more difficult

That’s why understanding the structure behind QuickBooks is so important.

1. The Money In Workflow

The first workflow focuses on money coming into your business.

This process includes:

Invoices
Sales receipts
Customer payments
Deposits

To manage this correctly, it’s important to use the proper QuickBooks forms throughout the process.

Common Mistake: Forgetting to Receive Payment

One issue Erica and Lee frequently see is business owners sending invoices but forgetting to properly record the customer payment afterward.

This creates:

Outstanding invoices that appear unpaid
Bank feed mismatches
Confusion in accounts receivable

What a Clean Money In Workflow Looks Like

A clean workflow may involve several QuickBooks forms, including:

Purchase orders
Invoices
Sales receipts
Payment entries
Deposits

Each form plays a role in ensuring the transaction flows correctly through the system.

Signs the Money In Workflow Is Broken

There are several warning signs that this workflow is not functioning properly:

The bank feed doesn’t match correctly
Payments appear duplicated or missing
Transactions are incorrectly assigned to payroll expenses or other unrelated accounts

When the money in workflow breaks down, income reporting becomes unreliable.

2. The Money Out Workflow

The second workflow focuses on money leaving the business.

This involves understanding the difference between:

Bills
Checks
Expenses

According to Erica and Lee, one of the biggest mistakes happens when users misunderstand how bills work in QuickBooks. Check out Episode 22 for more information on bills, checks and expenses.

A Common Problem With Bills

In QuickBooks:

You enter the bill
Then you pay the bill

However, many users:

Enter the bill
Then separately create a check instead of using the “Pay Bills” function

This duplicates the transaction and creates reporting issues.

Red Flags in the Money Out Workflow

One major warning sign is confusion between:

An invoice (money owed to you)
A bill (money you owe someone else)

When these forms are misunderstood, expense tracking and payables quickly become inaccurate.

3. The Month-End Process Workflow

The final workflow focuses on month-end financial review and reconciliation.

This process acts as the quality control system for your bookkeeping.

According to Erica and Lee, financial administrators need clear checks and balances to review financial information regularly.

Bank Reconciliation Matters

One of the most important month-end tasks is bank reconciliation.

Reconciliation helps identify:

Missing transactions
Duplicate entries
Incorrect balances

Without reconciliation, it becomes difficult to trust your reports.

Reviewing Financial Reports

A strong month-end process should also include reviewing:

Profit & Loss Statements
Comparative reports from prior periods
Cash Flow Reports

Erica and Lee emphasize that the Cash Flow Report may be one of the most valuable tools in QuickBooks—yet many business owners rarely use it.

Why These Workflows Work Together

These three workflows are interconnected.

If your:

Money in workflow is inaccurate
or
Money out workflow is incomplete

Then your financial reports will also be inaccurate.

That’s why consistent systems and proper workflows are so important for maintaining reliable financial information.

Final Thoughts

At the end of the day, QuickBooks is an accounting software, so it is a foreign language to many business owners, but with the right training, these workflows will work for you.

If you liked the podcast, you will like our training course. Click on the link below to join our upcoming course.

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Choose the Right Form in QuickBooks

Choosing the Right QuickBooks Form: Why It Matters More Than You Think

In this episode of QuickBooks Mastery for Small Business Success, Lee Davis and Erica Northrup discuss an important—but often misunderstood—part of using QuickBooks correctly: choosing the right form for your transactions.

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At first glance, forms like Bills, Checks, and Expenses may seem interchangeable. But using the wrong form can create inaccurate reports and confusion in your financial records.

Why the Correct Form Matters

Choosing the right form affects how your transactions appear in your reports—especially if you are using the accrual basis of accounting.

Under the accrual method:

Expenses are recorded when they are incurred
Income is recorded when services are performed

It’s not about when money changes hands. It’s about when the transaction actually happened.

That’s why using the proper form is so important.

Understanding the Bill Form

One of the biggest areas of confusion is the difference between a bill and an invoice.

As Erica and Lee explain:

When you receive an invoice from someone else, it becomes a bill to you
A bill represents money you owe for services or products already received

Bills often have:

A service date
A due date
A payment date that happens later

In QuickBooks, the process typically works like this:

Enter the bill
Pay the bill later

This workflow is essential for accurate accrual accounting.

When to Use the Check Form

The Check form is used when money is leaving your account immediately.

This includes:

Physical checks
ACH payments
EFT payments

If the payment is happening right now, you generally do not need to create a separate bill first.

Even online payments are often recorded using the Check form because the money leaves the account immediately.

When to Use the Expense Form

The Expense form is commonly used with:

Credit cards
Debit cards
Bank feed transactions

This form works well for recurring or automatic payments where the money is withdrawn immediately.

For example:

Subscription charges
Debit card purchases
Automatically imported bank feed transactions

In these situations, the Expense form helps streamline the recording process.

A Simple Way to Decide

Erica and Lee offer a practical way to determine which form to use:

Are You Paying Now or Later?

Paying later? → Use a Bill
Paying now with a check, ACH, or EFT? → Use a Check
Paying now with a credit or debit card? → Use an Expense

Keeping this framework in mind can simplify transaction entry significantly.

What Happens If You Use the Wrong Form?

Using incorrect forms can lead to:

Inaccurate reporting
Confusing financial statements
Problems with accrual accounting
Difficulty tracking payables and cash flow

Over time, these mistakes can make it harder to trust your reports and understand the true financial position of your business.

Understanding Accrual Accounting

A major takeaway from this episode is understanding what accrual accounting actually means.

Under the accrual method:

What matters is when the expense or income was incurred
Not necessarily when payment was received or made

For example:

A service performed in March should be recorded in March—even if payment happens later

Using the correct QuickBooks forms helps ensure your records reflect that timing accurately.

Final Thoughts

Today, Lee covered a very practical lesson: Choosing the correct form in QuickBook. If you do this correctly, your books will tell the story you intend to show. It is critical for accrual based accounting that you do this right. Stick with this podcast for more practical lessons on QuickBooks.

If you liked the podcast, you will like our training course. Click on the link below to join our upcoming course.

Join our Zoom Class

Fix this First in QuickBooks

What Should You Fix First in QuickBooks?

In this episode of QuickBooks Mastery for Small Business Success, Lee Davis and Erica Northrup discuss one of the most common questions business owners ask when their books feel messy or overwhelming:

Where do I even begin?

When bookkeeping problems start piling up, it’s easy to feel stuck. But according to Erica and Lee, the best place to start is often the issue that’s causing the most stress or uncertainty.

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Start With What Feels Wrong

Many business owners first notice a problem when something obvious doesn’t look right—such as a checking account balance in the chart of accounts that seems completely off.

That discomfort is usually a signal that something needs attention.

Rather than ignoring it, start there.

Why Google Isn’t Always the Best Solution

When bookkeeping issues arise, many business owners immediately search online for answers.

While online resources can sometimes help, QuickBooks problems are often tied to the specific way your books were set up. Generic advice may not fully solve the issue—and in some cases can make things more confusing.

The key is understanding the why behind the problem, not just applying a quick fix.

1. Start With the Chart of Accounts

According to Erica and Lee, one of the first places to review is the Chart of Accounts.

If the structure of your accounts is incorrect, everything connected to those accounts can become inaccurate as well.

Common issues include:

Accounts classified incorrectly
Too many unnecessary accounts
Accounts that don’t fit the business properly

One practical tip is to use your Schedule C as a guide when cleaning up your chart of accounts.

Most importantly, your chart of accounts should be customized to your specific business—not copied from someone else’s setup.

2. Review the Bank Feed

The bank feed is another area where problems often begin.

Common mistakes include:

Duplicate transactions
Incorrect account assignments
Automatically accepting suggested categories without review

While automation can save time, it still requires oversight and accuracy checks.

3. Check Your Reconciliation

Reconciliation issues are another major source of frustration.

Often there are:

Transactions sitting unreconciled
Duplicate entries
Missing or incorrect transactions

When reconciliations are inaccurate, your reports become unreliable.

Reviewing and cleaning up reconciliation discrepancies can significantly improve confidence in your books.

4. Improve Categorization

Categorization mistakes can affect nearly every financial report in QuickBooks.

Erica and Lee recommend:

Using bank statements to verify transactions
Matching entries carefully
Categorizing transactions intentionally

One important reminder:
Don’t automatically trust QuickBooks’ suggested categories.

When setting up products and services, it’s also essential to connect them to the correct income accounts so sales are recorded properly.

How Do You Know the Cleanup Is Working?

Bookkeeping cleanup can feel overwhelming, so it’s important to recognize progress along the way.

According to Erica and Lee, once that first major issue is resolved, you’ll often feel like you’re finally moving in the right direction.

A good way to measure success is by reviewing:

Your Profit & Loss Statement
Your Balance Sheet

When those reports begin making sense and reflecting reality more accurately, you know the cleanup process is working.

Final Thoughts

Fixing your book is crucial to gaining control of your business. Lee has been in the business of cleaning up messy book for over 10 years, and entrepreneurs usually have similar problems.

You could hear it in the tone of his voice during the podcast – this is old hat to him. He has looked at enough books to instantly spot the problems. If you are needing help, don’t hesitate to reach out.

If you liked the podcast, you will like our training course. Click on the link below to join our upcoming course.

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Why is QuickBooks Confusing?

Why QuickBooks Feels So Confusing for Business Owners

In this episode of QuickBooks Mastery for Small Business Success, Lee Davis and Erica Northrup discuss a frustration shared by many business owners: why QuickBooks can feel so confusing.

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For many entrepreneurs, the challenge is not a lack of effort—it’s that QuickBooks combines software with accounting concepts that may already feel unfamiliar.

QuickBooks Is More Than Software

One of the biggest reasons QuickBooks feels difficult is that it’s built around the language of accounting.

As Erica and Lee explain, it can feel like learning a foreign language:

Debits and credits
Assets and liabilities
Reconciliation and accrual accounting

Even simple tasks can become confusing if the underlying accounting concepts are unfamiliar.

Choosing the Right Version Matters

One of the first steps toward reducing confusion is selecting the right version of QuickBooks for your business.

Choosing software with features you don’t need can make the system feel unnecessarily complicated.

On the other hand, choosing a version that’s too limited can create workflow problems later.

Finding the right fit helps simplify the learning process from the beginning.

Many Business Owners Don’t Have an Accounting Background

Another major challenge is that many entrepreneurs are experts in their industry—not in bookkeeping or accounting.

They may be:

Great at sales
Skilled at operations
Strong leaders

But financial software requires a completely different skill set.

That disconnect often creates frustration and uncertainty.

“Limping Along” Creates Bigger Problems Later

According to Erica and Lee, many business owners try to push through without fully understanding the system.

They “limp along” by:

Avoiding bookkeeping tasks
Guessing at categorizations
Ignoring reports
Hoping everything works itself out by tax season

Unfortunately, these problems usually grow over time.

When tax season arrives, clean and accurate books become essential—and unresolved issues can create stress, delays, and costly mistakes.

Avoiding the Books Is Common

Many business owners begin avoiding their books altogether once the process feels overwhelming.

That avoidance can lead to:

Missed transactions
Inaccurate reports
Cash flow confusion
Increased anxiety around finances

The longer bookkeeping is ignored, the harder it becomes to regain control.

Start by Identifying the Problem

Rather than trying to fix everything at once, Erica and Lee recommend starting with a simple question:

What specifically are you struggling with?

It may be:

Bank feeds
Reconciliation
Invoicing
Reports
Categorization

Identifying the exact pain point makes it easier to find the right solution.

Professional Help Can Make a Difference

Getting professional support doesn’t just solve problems—it can also help business owners build confidence.

A knowledgeable advisor or trainer can:

Explain how QuickBooks works
Simplify accounting concepts
Create better systems and workflows
Help business owners feel more comfortable with their numbers

The goal isn’t just cleanup—it’s understanding.

It’s Not Just You

One of the most important takeaways from this episode is simple:

QuickBooks is not naturally intuitive for many people.

The frustration many business owners experience is common, especially without accounting training. The good news is that with the right support and education, it becomes much easier to manage.

Final Thoughts

You got into business not to do bookkeeping, but you ended up doing bookkeeping. Now you are in over your head and looking for help. Lee Davis and Company can help you with your book by training you or just by managing your books.

If you liked the podcast, you will like our training course. Click on the link below to join our upcoming course.