There are a few key functions every bookkeeping newbie needs to understand. I’ll use the terminology that QuickBooks uses, but most entry level accounting systems are similar.
First, if you’re a newbie to QuickBooks or bookkeeping, note that the easiest way to get transactions into your accounting system correctly is by downloading them directly into your software by linking your accounting software and your bank/credit card accounts. When you set this up, the recent transactions from your bank or credit card show up in a list in your accounting software. You select a type of expense for each transaction, and hit the “record” button to lock each into the software. That’s easier and more reliable than entering every transaction one at a time.
Even with a connection to your bank and credit card system, you’ll still end up doing some functions one at a time - and you need to know them in case something doesn’t go perfectly in the download-and-record process.
These are the essential ones you need to know.
1. Enter Credit Card Charges
Every transaction that hits your credit card should be recorded individually into the accounting software. Any good accounting software will make this really easy - by connecting to your credit card’s online login and downloading the transactions. However, if you need to enter any transactions manually, use the function for Enter Credit Card Charges.
Many businesses intentionally use the Enter Credit Card Charges function rather than downloading the transactions, because then the person doing the entry has an opportunity to use the “memo” field to describe the transaction more thoroughly. When you download credit card transactions, the systems fill in the memo field with data that isn’t really helpful. For example, if multiple people use one credit card, the memo field might be an opportunity to note who is responsible for the transaction. For meals or entertainment purchases, the memo field can be used to describe who the card holder met with, or what the business justification is for putting it on the company card. The memo field can still be modified if the transactions are downloaded - this way has just felt easier in some situations.
When using the Enter Credit Card Charges function, the result is: Expense increases, credit card payable liability increases. (You later bring the credit card liability back down by telling the accounting software you paid down your balance). Accounting terminology: debit expense, credit CC payable.
2. Write Checks
This poorly-named function has multiple purposes. Use this when:
1) You want to print a check that isn’t paying off an existing vendor bill.
2) A transaction hits your bank account that needs to get into your accounting system, but isn’t vendor bill related - even if it doesn’t need to have a check printed. For example, a monthly bank fee.
If you’re using the Write Checks function for the vast majority of your transactions, you probably aren’t using the accounts payable section of your accounting system the right way. More on that below in Enter Bills / Pay Bills.
The result is: Expense increases, cash decreases. Accounting terminology: debit expense, credit cash
3. Enter Bills
Use this function any time you get a bill from a vendor. QuickBooks is designed to track who you owe, and when that payment is due. To use that effectively, you need to tell the system that you received the bill from your vendor, who its from, when its due, and how much it is for.
To enter that vendor bill, you use the function Enter Bills. Input the applicable information about the bill, paying particular attention to 1) the due date, and 2) the invoice number, which goes in the reference field above the amount in QuickBooks.
Once your vendor bills are entered, you can run reports like Unpaid Bills or A/P Aging to make your payments at the appropriate time.
The result is: Expense increases, accounts payable liability increases. Accounting terminology: debit expense, credit accounts payable liability.
4. Pay Bills
Once your vendor bills are entered into the system, Pay Bills is the function you use to select which ones you want to include in today’s check run. Use the check boxes to select which bills you want to pay, the follow the steps to print the checks.
The result is: accounts payable decreases, cash decreases. No impact on expense - remember, you already charged the expense when you first entered the bill. Accounting terminology: debit accounts payable liability, credit cash.
5. Make Deposits
Use this when funds get deposited into your bank account.
Important! If you’re invoicing customers (which creates an open receivable), the payments from those customers have to be recorded to show that you’ve collected that receivable. Those steps aren’t discussed here - they’re important to know, but not all businesses invoice customers, so it didn’t make this list of essential functions. Through a Google search and some youtube videos, you’ll understand how to use the system to show that payments collected pay down the balances on invoices in short order (if that doesn’t work, email us at firstname.lastname@example.org and we’d be happy to help).
It is, however, essential to know the Make Deposits function. This is the comparable function to Write Checks, but is for inflows to your bank account while Write Checks is for outflows.
The result is: some account you choose (often revenue) increases, cash increases. Accounting terminology: debit cash, credit whatever account you choose (often revenue)