If you're operating an online business, you'll find it relatively easy to use Quicken. The popular checkbook program makes for easy accounting as long as you follow five simple tips.
Tip #1: Tell Quicken you'll be doing business bookkeeping.
When you setup and install Quicken, you'll want to indicate that you plan on using Quicken to keep the books for a small business. By providing this information early on, the Quicken installation program will create income and expense categories useful for tracking your online business.
Tip #2: Set up a separate bank account for your online business.
In order to keep your financial affairs well-organized, you'll want your online business to have a separate bank account. Use this bank account for collecting the money you receive and for paying any of the business' expenses
By following tips #1 and #2, you'll automatically organize your business' financial records in a way that allows you to produce monthly and year-end profit and loss statements--something you'll need to prepare your federal and state income tax return.
One other note: If you're using PayPal, treat PayPal as just another bank account. From Quicken's perspective, that's what PayPal is.
Tip #3: Download PayPal transactions automatically.
If your PayPal transaction volumes are large (say you've got hundreds of transactions a month), be sure to automatically download the transactions from your PayPal account into Quicken.
To automatically download transactions from PayPal into your Quicken data file, log on to PayPal, choose the
command from the menu, specify the date range for which you want to download transactions, and indicate you want to use the Quicken download format.
After you download the PayPal transactions into a Quicken download file, start Quicken and choose the of command and, when prompted, indicate you want to import the downloaded PayPal transactions.
Note: The precise procedures to export transactions from PayPal and then import the transactions into Quicken vary over time and from one version of Quicken to the other. So you may notice some differences between the instructions provided here and the actual mechanics you need to use.
Tip #4:Be sure to regularly reconcile your bank accounts.
You want to regularly reconcile your business bank accounts, including the PayPal account. Reconciling your bank account is important because you'll catch omissiona and data entry errors. In short, bank account reconciliations clean up your accounting records.
Tip #5: Keep your inventory accounting simple.
There's nother complication in the accounting of an internet business. Some online businesses (many eBayers, for example) have to fiddle with inventory accounting.
The accounting challenge stems from rules which say that you can't simply write off as a deduction the amounts you pay for the inventory you purchase until you sell the items in, for example, an eBay auction.
Unfortunately, a program like Quicken doesn't handle inventory very well. But you can still use Quicken for an online business that resells inventory with a few extra steps:
First, categorize your inventory purchases as, well, "purchases."
Second, at the end of each year, do a physical count and valuation of the items you're holding as inventory. You're interested in knowing what the inventory you hold at year-end originally cost you.
With the year-end inventory balances and the annual purchases, either you or your accountant will easily be able to calculate the cost of the goods you sell over the course of the year using this formula:
Last year's ending inventory + Purchases - This year's ending inventory
The preceding formula, by the way, is exactly what the Schedule C Sole Proprietorship tax form does to calculate a business' cost of goods sold.
------
Seattle acountant and author Stephen L. Nelson is the author of the bestseller Quicken for Dummies and the recent ebook Starting an Internet Business. Nelson also edits the small business website Limited Liability Companies Explained.
