The magazine of the Melbourne PC User Group
DIY Bookkeeping for Home and Small Business
An Occasional Contribution from the Quicken SIG
Bob Mayston
 bobmay@melbpc.org.au

Notice we said bookkeeping, not accounting! The finer points of accounting and taxation are, unless you have fairly basic accounts, best left to the professionals whose job among other functions is to keep you updated with changes in taxation as well as maximise your deductions. However, book- keeping, at least to the reconciled trial balance stage, is well within the capabilities of the average wide-awake person and in so doing they will gain rapid appreciation and a monitor of their financial position.
 
That said, one of the better aspects of the introduction of the GST was initially to force you to review your finances on a quarterly basis. Political pressure has since led to the sloppy "let us tell you" option from the ATO, which allows you to return to the "receipts in the shoe box" once-a-year approach to your finances.

The reward for staying with the quarterly assessment of your finances is a greater awareness of your ongoing financial position. To do so with minimum effort you will need a computerised program to do the hackwork and present you with the necessary reports and if required even the BAS itself. In Australia, two companies dominate the market for suitable programs, Intuit/Reckon and MYOB (Mind Your Own Business). Both offer programs that will cover personal finances and those of a small business. It is really a matter of personal choice. My own experience is with Quicken and QuickBooks from Reckon so those are the ones to which I will refer.

Are they difficult to use? No, not really, but it helps if you have some knowledge of simple bookkeeping and know your way around a computer. Ignore those adverts (fortunately seen less nowadays) for programs claiming you do not need ANY knowledge of accounts. Some knowledge sure helps!
 
Where to start? First decide what area of finances you want to track. Reckon presently offers three distinct packages. Quicken Personal 2002, Quicken Cashbook, and QuickBooks, the latter a dedicated business accounts package.

For the home, Quicken Personal admirably handles household/personal finances and share tracking, and even automates the daily downloading of share prices and foreign currency exchange rates from the Web. It also has a home inventory module that helps you track the value and insurance cover of your most valuable asset-your home. Another use is to track finances of clubs and Body Corporate. Not only does it make the task easy, but you can also present professional and meaningful reports at the touch of a button. That said, Quicken does provide a version for small business called Cashbook that includes a primitive invoice module and a BAS tax reporting facility. However, if your main activity is small business and you are required to write invoices, statements and submit a BAS then QuickBooks is the product of choice. Remember though, that QuickBooks cannot handle share and home inventory transactions.

Getting Started

Unfortunately these days comprehensive "how to" manuals are seldom part of the program package. Instead you have to read or download copious help files from the program and for many, these are not as easy to follow as the written word. Earlier versions of Quicken/QuickBooks had excellent manuals and if you can find them they are a huge help. The Melb PC Library has a useful selection of books covering several versions of the programs so take a look there. Also of help are the Australian produced books "Using Quicken" and for business applications "QuickBooks and Cashbook for the BAS, GST and PAYG", both written by Stephen O'Brien. If you are comfortable with some basic keyboard skills you can get off to a good start by taking the training courses offered by Melb PC and taught by Viv Martin.

These courses cover both Quicken and QuickBooks. Also offered by the group for keen followers of the share market, is a course by Deanna Ross exploiting the further potential for using Quicken Personal to track and progress your share portfolio. See the training section of PC Update for details. For those using MYOB the group also has a training course suitable for you. If you are really adventurous, you can do what we all did initially and hack it from square one. It takes time, but the training courses will get you up to speed much quicker.
 
Having decided the program best suited to your needs, the installation is straightforward but please remember to shut down any other running programs (Ctrl-Alt-Del for Windows 9x) before installation. By closing other running programs, you minimise the chances of a corrupted installation. After installation you should select Options from the tool bar and set the International Settings screen, in particular, from the settings in General Options, which month you want to be the first month of the financial year. On opening the program Quicken offers two useful tools to help you use and find your way around. First the Activity Bar running along the bottom of the screen gives easy access to your most used features and Quicktabs running vertically on the right hand side of the screen gives you quick access to the various registers.
 
With the installation complete it's time to take a test run. To enable you to do this there is a test program included. Use this to make yourself familiar with the commands and short cuts. The latter are designed to enable you to speed up the way you use the program.

Just to clear the air. By convention, single entry bookkeeping is seldom seen as commercial accounts are kept by the "Double Entry" method. This is based on the principle that each financial transaction involves two equal but opposite value entries in the books of account. It is for this reason some professional accounting people reel in contempt and reject the program, when they read on the cover of the Quicken Manual "Easier Single Entry Accounting For Your Business".
 
Let's look a little deeper. Quicken records its data in a series of account registers corresponding to the Balance Sheet accounts. When an entry is made to a register not only is the Payee nominated but also you should assign a "category" or a "what is this money for" entry. These "categories" are in fact completing the other side of a double entry system even though the whole registry entry is done within the framework of one transaction. Failure to assign a category will produce reports that include an entry nominated as "uncategorized expense or income " because without a category Quicken cannot complete the other half of a double entry. So despite the somewhat misleading cover notation, correctly used, Quicken is truly a double entry account keeping system.

Reference to Figure 1, a screen shot from the Bank Register may make this clearer.


Figure 1. The Bank Register.

Referring to the first transaction. The $50 is coming from the Bank (from an asset account) to Travel Taxis Pty Ltd (a service supplier). This is one action. At the same time we have designated the category or "what is this payment for" as "Cartage & Freight" (an expense) and here Quicken automatically adds $50 to this account and so completes the second action, of the double entry; yet both these actions have taken place within the one transaction in the bank register. Quicken has automated the method of double entry to work within the one register transaction. A further tip - use the memo field to detail further information on the transaction.


Getting Serious With Quicken

The general rule is for every tax file number, you need a separate Quicken file. This file may have one or more accounts such as bank accounts, credit cards, investments, shares, loans and mortgages; the only requirement is the results are all reported to the one tax file number. Yes, it is possible to mix private and business transactions in the one file by using classes, but it's best avoided because mistakes are easily made. However, in a small mixed business this may be acceptable but even then it is best that separate bank accounts be established for private and business. If you have a payment spread across private and business you can use the split command to divide the payment and use classes such as business and private to keep each part of the transaction separate. Classes are, in effect a way of directing a particular category (an income or expense) to a particular cost or income centre. It is also simple to transfer money from say the business bank accounts to the private account as both bank accounts reside within the one Quicken file.

Setting Up Accounts

The key to success is setting up your chart of accounts correctly. If you have a recently accepted return prepared by your Accountant, then use that. This way you and your Accountant will be in step. 
If not and you feel confident, Quicken assists you with some preset suggested lists. If you are unsure then seek help, it's better to get it correct at the start than try and patch it up later. Don't forget, Quicken has an extensive Help menu should you require assistance.

Remember, use only one Quicken FILE consisting of one or more accounts for each tax return. Don't worry if you missed one, as Quicken will allow you to add it later. You will notice as you add each account the Quicken interview screen changes according to the account types, as in this way it compiles the necessary starting data. To help make bank reconciliation easier set up an asset account named "Undeposited Funds." Use this as a holding account to deposit income as received. When you want to pay these funds into your bank account, clear and transfer the funds to your bank account. This way the income entries in the Bank Statement will, or should, coincide with those on clearing the holding account.

Cheques may be handled in a variety of ways. You may enter it straight into the bank register by filling out the relevant details of date, cheque number, payee, amount, memo and an expense category (or transfer to another account). It is essential that one or the other of these last two items be entered as this determines where the payment is intended. Failure to do so will show as "Uncategorized Expense" in the reports. If the cheque is in payment of a bill then from the Menu bar select Features, Paying Bills, Write Cheques and enter the details there. If the payment is spread over several items then use the "split" command to allocate the payment over the various expense categories. The sum of the "splits" should equal that entered in the bank register to facilitate the bank reconciliation. Note in business where GST is payable, most transactions will require use of the split command to divide the total payment between the supplier and the GST holding account.

For repetitive standard payments such as rent, hire purchase, instalments etc., Quicken has an optional "memorized transaction" feature that remembers the entry details and on typing the first few letters shows the full entry but with the present date. This feature may be coupled with other reminder tools called "Scheduled Transactions" or standing orders list and Bill Minder to remind you to regularly make these payments each month or quarter.

Credit Cards are best considered as current accounts and regularly reconciled with the statements, the necessary top-up funds simply supplied by a transfer from the bank account. However, care should be taken to correctly categorize the outgoings so accurate reports may be produced of the expenses.

If you have share investments, Quicken has a special register style for these that enables you to progress your investments, keep a price history and handle imputed credits; although the latter may be a bit tricky. Some people record these in a separate account within the investment module.

Tracking Shares

Quicken has an online share price update feature; so, providing you have Internet access keeping your portfolio value updated is just a few clicks on the mouse button. Figure 2 (below) shows the depth of data held on a single share, including a full history of dividends, sales and purchases - all vital data required for assessing your tax liability.


Figure 2. Share Detail.

Loans

Should you wish to track and calculate loan repayments, Quicken has a built-in calculator to do all this for you. If you are concerned over privacy matters there are several levels of password protection so you may limit access of sections of the accounts to others depending on your wishes.

Correctly set up, your personal file should reflect your net worth and answer the "Would I survive a financial crisis" question and assist you in planning your retirement. GST should not be an issue for personal files but investment transactions could give rise to Capital Gains Tax implications but again, correctly recorded, Quicken can give you instant reports to help compile your obligations. Don't forget to do the bank reconciliation at least monthly and find and correct any differences. Under NO circumstance accept the Quicken offer to "Correct" the balance.
 
Reporting

With the chart of accounts correctly set-up and transactions entered and categorized, it's time to use the elegant reporting functions which are the highlight of the Quicken program. Quicken comes with an excellent collection of preset reports designed to answer almost all your questions from where did all my cash come and go (the Cash flow report) to how has my share portfolio performed, and importantly what is my net worth. However, there is more. Quicken allows you to tailor your reports to give what information you require by customizing reports both to content and date frames. Quick Zoom is another great feature in Quicken. This allows you to examine the transaction detail in a report. For example, if you find an "uncategorized other" item in a summary report, simply double click on the amount to see a list of the individual transactions that make up that amount. To know when this feature is available, as you move the mouse over the report, simply look for the magnifying glass symbol enclosing the letter Z. When this is displayed double clicking the mouse expands the transaction into its component parts.

Small Business

So far we have principally dealt with personal applications of Quicken. The Cashbook version of the program can also accommodate the requirements of a small business but it has limitations. The invoice module is very basic; it cannot produce statements and has no stock control module. It can however handle the GST but this function is "hard wired" and you cannot alter the settings. However, the essential business reports such as Profit & Loss, Balance Sheet, Tax and GST summaries are all available.

In the case of small business the same basics apply as to individuals in that getting the chart of accounts correct from the start is the key to success. In business there is also the GST to be accounted for and it is important to correctly set up both the GST codes and rates as these determine the correctness of the BAS report. Quicken can print your invoices either on your own pre-printed letterhead or on blank paper. The receipt of customer payments is automatically recorded in the registers and shown in the reports. Similarly bill payments are automatically recorded in the various registers when paid. The program can also progressively track projects and jobs. 

Quicken offers business reporting and analysis of your sales, accounts receivable, bills payable, profitability, and finally your Balance sheet and GST reports. In calculating the GST payables, the Tax summary and Tax detail reports will be of much assistance. If you maintain an inventory or operate more than a basic business you are advised to use QuickBooks not Quicken to track your accounts. Likewise payroll is best handled by QuickBooks although basic cases can be accommodated in Quicken using liability accounts and categories.

Should your interest be primarily small business then QuickBooks, rather than Quicken, is the product of choice. QuickBooks has more features although many of these may be turned on or off according to need.


Figure 3. The Navigator Screen.

In business, QuickBooks Version 7.4 R3 or V8.0 will handle your requirements including preparation of the quarterly BAS. A new upgrade QuickBooks 2002 is expected very soon and will enable e-mailing of invoices directly from the program; plus there are additional refinements introduced as the result of user requests. The experienced and knowledgeable users can upload their BAS direct from the program. However, most users will be more comfortable using QuickBooks to keep their accounts up to date and submit a reconciled trial balance and Profit/Loss statement plus a tax summary, tax detail report and BAS report to their accountant each quarter. 

The accountant from these records can generally quickly check and satisfy himself of the accuracy and then electronically submit it to the ATO. One aspect that cannot be too strongly emphasised is the regular and absolute reconciliation of your bank statement and credit card account. If there is a disagreement-find it; do NOT accept the offer in the programs to adjust the balance. If there is a discrepancy, find the reason and correct it. By at least a monthly reconciliation you keep the time frame of possible mistakes within manageable proportions.

As general guide you should upgrade from Quicken or use QuickBooks if:

  • You want to send Statements (You often find you get paid earlier if you send Statements)
  • You want to track stock
  • You are not the sole proprietor
  • You have a Payroll
  • You want to customize your invoices
  • Multiuser requirement

To elaborate, some of the essential differences between the two programs are:

  • QuickBooks provides differing style of invoice forms depending on the type of business serviced.
  • QuickBooks allows you to customize invoice templates adding fields if necessary.
  • QuickBooks can issue Statements and or invoices.
  • QuickBooks allows you to add a mark-up to and charge reimbursable expenses.
  • QuickBooks allows you to track stock and alert minimum holding
  • QuickBooks automates the BAS and allows either GST included or excluded invoicing style.
  • The PRO versions of QuickBooks have optional Payroll module.
  • The PRO versions allow you to issue estimates (easily converted to invoices) and track time.
  • QuickBooks 2002 is expected to allow direct e-mailing of invoices.
  • QuickBooks has a more extensive reporting capability.
T he initial interface of QuickBooks continues to change with each successive version. However, the style of the registers and general use resembles Quicken; so, little difficulty should be experienced upgrading. Various tasks are selected from the navigator screens where the content changes according to the function tab selected from the left side of the screen.
 
After installation it is necessary to go to the preferences screens to set both the personal and Company preferences including importantly whether accounts will be kept on a cash or accrual basis and also to turn on tax tracking for the GST. This preference will also spill over into your GST reporting, where you can keep your accounts on a Cash Basis and do reports in Accrual but do not change the Preferences. However, do not change the basis midstream. Not only will you be in trouble with the ATO but also you ay do irreparable damage to your QuickBooks data file. These preference lists are much more extensive than Quicken.
 
A further useful feature is the provision of an Accountant's Copy. This allows your accountant to check/correct off-site your accounts but meantime in so doing both he and the user have restricted access to the accounts. When concluded the accountant's copy is merged to the original at which point full access is restored.
 
Once again the initial setting up of the chart of accounts is crucial. There is a distinction between Quicken and QuickBooks on how these are presented. QuickBooks lists everything as accounts; that is, Assets, Liabilities, Equity, Income and Expense but only the Balance Sheet/Equity items have figures against them. Quicken lists only Assets and Liabilities as Accounts and Income and Expenses as Categories. Quicken does not have any Equity accounts.
 
Again, if you have an Accountant's accepted set of accounts and reconciled Bank Account use these to set up your own chart of accounts. If not, get some help to do so as it's essential you start out correctly. You will need to set up a list of items and the pricing for invoicing and, in each case, allocate the correct GST category. In similar fashion, set up the expense items and their correct GST categories. Remember it is no longer necessary to include Government and statutory charges in the BAS (Treasurer's Determination 2000 refers). However, it's a good idea to categorize all items for GST even if you have to invent some codes for non-recordable items. This way when you run a tax report you will quickly see if any items are not coded for GST. However, filtering the Profit & Loss report to show no tax codes can similarly highlight any missed items.
 
Invoicing

QuickBooks has an excellent invoicing module, which provided you have correctly set-up your customer and item lists, makes invoicing a breeze. Notice how the GST is automatically calculated and added to the total? With a little lateral thinking you can also customize your invoice template to best reflect the style of your business and even include a return payment slip, although this feature has now been added to later versions.

Like Quicken, QuickBooks also has a memorized transaction facility to help automate the payment or receipt of recurring transactions. It also produces professional looking purchase orders and credit Adjustment notes.


Figure 4. The Invoice Screen.

As already observed the reporting functions in QuickBooks are quite extensive, and besides the mandatory Profit and Loss and Balance Sheets, includes a full BAS report. To complete the latter it is also necessary to track in the accounts the PAYG instalments deducted from wages; so, be sure to set this up correctly. Also, if applicable, the Fringe Benefit Payments. Properly set up, the complete BAS report may be automatically generated from the accounts, the only manual insertion being the Commissioner's rate entered at T2. QuickBooks can even convert the form for electronic transmission to the Tax Office. Again, various tiers of password protection enable the owner to limit access to sensitive information.
 
Depreciation

One function still not included in QuickBooks is a depreciation module. Presently, the best method is to have a spreadsheet set up with all assets, make the appropriate depreciation calculations, then bring these back to QuickBooks as an expense and deduct the values from each asset to arrive at an updated value of the asset. Remember any value received on disposal of the asset has to be recorded, then either a loss or profit on disposal recorded in the accounts. Only then may you clear it from the Asset Register. If in doubt, best leave it to your Accountant or have him set it up for you.
 
QuickBooks is available either as a single user or up to 5-user profile; the latter thus suits a small, networked office. Always of importance but more so in business is the need for suitable backup of data. 
Although repeated ad nauseam, it cannot be emphasised how vital it is for off-site copies to be regularly made and kept.
 
A small 1.4 MB floppy holds the backup for a reasonable size company but if needed the advent of the rewritable 
CD-ROM has made the backup of larger files simple and inexpensive. Again, regular, at least monthly, bank reconciliations are essential and on no account allow the program to correct any out of balance amount. If it's out, find and correct it! There is a facility for online banking although available cooperative banks are presently limited. Do not overlook the extensive help files including the tutorials that help first users to practice and get the feel for the program.
 
Payroll

If you have the need there is an optional Payroll module available in the PRO versions, also an estimate feature that allows you to send professional looking estimates that may be converted to invoices if accepted by the customer. For professional people there is also a time tracking feature in the PRO version. This greatly simplifies the tracking and charging of time.


Figure 5. Newtown Hardware.

Figure 5 gives some idea of the versatility of the program, where we have used classes to present a profit dissection by department of a small fictitious hardware company.
 
Finally, if you are stuck, in the help screen there is a list of QuickBooks trainers who, for a fee, will assist you in setting up or with problems faced along the way. If your problems are not major, there is the Melb PC's own Quicken SIG where questions on Quicken and, with good humour, those in QuickBooks are regularly aired and solved at each meeting. There is always something happening, new versions to be evaluated - and the subject of share tracking is forever lurking. The Quicken SIG is a great place to get up to speed with either program. So, if you need help or enjoy good company it is the place to come!

Disclaimer. This article and the information contained does not constitute financial or taxation advice. The reader should seek professional advice in such matters.

Reprinted from the June 2002 issue of PC Update, the magazine of Melbourne PC User Group, Australia

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