Welcome to the FitSmallBusiness QuickBooks Online training course. In this lesson, we’re going to cover how to set up Advanced Settings in QuickBooks Online. These settings affect what shows up on your financial reports, including your profit & loss statement, balance sheet, and cash flow statement.
We’re glad you’re taking the time to learn QuickBooks Online, our best overall pick for small business accounting software. We encourage you to follow along in your own QBO account. If you don’t already subscribe to QuickBooks Online, click here to sign up for a free 30-day trial.
To complete this lesson, you can either watch the video below, read through the step-by-step instructions, or do both. Let’s begin.
If you’d like to learn more about managing income, expenses and reporting in QuickBooks download our free 39-course QuickBooks tutorial here.
Why Advanced Company Settings in QuickBooks Are Important
Advanced company settings in QuickBooks are important because most of what’s here is used as default settings for your financial reports, including your profit and loss statement, balance sheet, and cash flow statement. There are also features here that determine how customer credits are applied and how you want QuickBooks to manage bill payments.
If you do not set up this area, then your reports are run using the default information for fiscal year, accounting method ― like cash or accrual ― and chart of accounts. If these default settings do not match your actual business information, then it could result in incorrect financial reports. In turn, this could impact your tax returns, ability to get a business loan, and more.
This is one of those areas that you do not want to skip in our QuickBooks Online training.
5 Steps to Setting Up Advanced Settings in QuickBooks Online
There are five steps you need to complete to customize advanced settings in QuickBooks Online. After logging in, you navigate to the Account and Settings section, and that is where you find the Advanced Settings options.
The five basic steps to set up advanced settings in QuickBooks Online are:
- Log into your QuickBooks Online Account
- Click on the Gear icon
- Click on Account and Settings
- Click on the Advanced Tab, which is the last tab listed on the left
- Click the pencil icon to edit or activate one of the nine available advanced features
Which Features in QuickBooks Online Are Included in Advanced SettingsListed below are nine features that you can activate in the Advanced Settings section of QuickBooks Online.
1. Select Your Accounting Method & Fiscal Year
In the accounting method section, you select the fiscal year for your business. In general, most businesses use the calendar year, January 1 through December 31. However, if your business uses a different fiscal year, then you would note that here.
You also need to select the accounting method that you use, which is either cash or accrual. Most small businesses use the cash method. If you are not sure which method you use, refer to your tax return or contact your tax professional.
2. Select Your Company Type
In the business entity section, you need to select how your company is organized. This information is used on any tax forms that you print directly from QuickBooks like W-2s, 1099s, and payroll tax forms 940 and 941.
The company types you have to choose from in advanced settings in QuickBooks are:
- Sole proprietor: A business with one owner who files Form 1040 and Schedule C
- Partnership: A business with two or more owners, which files taxes using IRS Form 1065
- S corporation: A small business corporation with two or more owners that files taxes using IRS Form 1120-S
- C corporation: A medium to large business corporation with two or more shareholders
- Limited liability corporation: A business with one or more owners whose personal assets are protected from the liabilities and obligations of the business
- Nonprofit: Unlike businesses which are formed to make a profit, a nonprofit organization is formed to provide a public benefit
Example: Paul files a Schedule C with his tax return, so he is a sole proprietor.
3. Customize Your Chart of Accounts
The chart of accounts is a list of accounts used to categorize business income and expenses. Based on the industry you selected when you created your QuickBooks Online account, QuickBooks provides you with a standard chart of accounts list. You can customize that list by turning on a feature that allows you to assign account numbers to income and expense accounts, capture discounts, and keep track of tips paid to employees.
Listed below are the three ways you can customize your chart of accounts in QuickBooks Online:
- Account numbers: This feature allows you to assign an account number to all your accounts; most accountants tend to use this feature, but it is not commonly used by non-accountants; unless you have been given a chart of accounts that your accountant wants you to use, I recommend that you leave this feature off
- Discount account: In our QuickBooks Online lesson on how to set up invoices, sales receipts, and estimates, in we walked thru how to turn on the discount feature; if you activated this feature, then you want to be sure you assign a discount account here; if you did not set up a discount account, you can do so from this screen.
- Tips account: If you have a business that allows employees to accept tips, you can create a separate account to keep track of tips paid to employees
4. Create Categories to Allow for Detailed Reporting
If you need detailed reporting that allows you to run reports by department, product line, or location, you want to turn on the categories feature. You can create classes to track by product line or department, and you can turn on locations to track by store or region.
Listed below are the two ways you can create and track categories in QuickBooks Online:
- Track classes: Class tracking allows you to categorize income and expenses by department or product line; once you turn this feature on, it adds a class field to all sales and expense forms
- Track locations: Location tracking allows you to categorize income and expenses by location like stores or sales region; once you turn this feature on, it adds a location field to all sales and expense forms
5. Automate Certain Tasks in QuickBooks Online
The automation section allows you to activate features that help save time when you are entering data into QuickBooks. Automatically prepopulating fields, copying information from estimates to an invoice, and applying payments received from customers automatically are some of the features you can activate in this section.
Below is a list of tasks that you can automate in QuickBooks Online.
Prefill Forms With Previously Entered Content
The prefill forms feature completes the fields on any form in QuickBooks automatically based on the last saved transaction for that customer, vendor, or employee.
A WORD OF CAUTION: While this feature might save you a few keystrokes, be sure that the information that is copied over is correct. For example, if the invoice date or amount is different from the last transaction, you need to update those fields with the correct information.
Example: In Paul’s business, time is money. If he can save even a few minutes here and there, it’s worth it. He’s going to allow QuickBooks to prefill his forms so that all he has to do is make changes to just the fields that are different.
Apply Credits Automatically
The apply credits automatically feature applies credits automatically to the next invoice you create for the same customer. For example, if you overcharge a customer for something, then you need to create a credit memo in QuickBooks for that customer.
By turning this feature on, QuickBooks applies the credit automatically to the next invoice that you create for that customer so that the amount that they owe is reduced by the credit that is applied. If you don’t turn this feature on, you have to apply any outstanding credits to customer invoices manually.
Copy Estimates to Invoices
With the click of a button, the copy estimates to invoices feature allows you to create an invoice quickly by copying the items from an estimate that your customer has approved. Turning on this feature is worth the keystrokes it saves you.
Example: Turning on this feature saves Paul time because once his customer approves his estimate, he can go into QuickBooks and create an invoice with just the click of a button. QuickBooks copies the information from his estimate to an invoice.
Apply Bill Payments Automatically
This setting applies your payments automatically to the oldest existing bill that you have entered into QuickBooks for a vendor. For example, when you create a payment for a vendor you typically want to pay the oldest bill first. By turning this feature on, QuickBooks applies your payment to bills automatically in the order that they become due. This ensures that your bills are paid by their due date.
6. Create Projects
If you typically work on a project basis, you can keep track of all income, expenses, and timesheets by project when you turn this feature on.
Example: Paul typically works on multiple projects for a single customer. At the end of each project, he would like to run a report to see all income and expenses for a project so that he can determine if the project was profitable.
7. Turn on Time Tracking to Stay on Top of Contractor Hours
If you hire contractors, then the time tracking feature might be something you want to set up. It allows you to easily manage the hours that they work and makes it easy to bill your customers back for that work if you need to.
Example: Paul bills customers by the hour, so this feature helps him to easily bill his customers for the right hours once the job is complete.
8. Turn on Multicurrency to Invoice and Pay in a Foreign Currency
By activating the multi-currency feature, you can invoice customers in their native currency, pay vendor suppliers who are outside of the United States and track all banking activity in multiple currencies. QuickBooks does all the exchange rate calculations for you, including converting your financial reports into U.S. dollars.
9. Select Other Preferences
The other preferences section allows you to tweak general features in QuickBooks Online company settings. This includes date and number format and whether you want the system to notify you of duplicate transaction numbers like check numbers and invoice numbers.
Listed below are other preferences that you can customize in QuickBooks Online:
- Date format: This feature allows you to select what format you would like all the date fields in QuickBooks to be like mm/dd/yyyy
- Number format: This feature allows you to select what format you would like all the number fields in QuickBooks to be like 123,456.00
- Warn if duplicate check number is used: By turning this feature on, QuickBooks warns you if a check # that was previously used is being entered again
- Warn if duplicate bill number is used: By turning this feature on, QuickBooks warns you if you enter a vendor bill or invoice number that was previously entered into QuickBooks; I recommend that you turn this feature on to safeguard against paying a vendor twice for the same work
- Sign me out if inactive: You can set this feature up so that QuickBooks logs you out automatically; the default is set to one hour, but you can increase that up to three hours
That wraps up the lesson on how to set up advanced settings. The next lesson in our QuickBooks Online training course is How to Import Bank Transactions into QuickBooks. In this lesson, we walk you through how to connect your bank account to QuickBooks.
To access this course or any of the others in the series, click here.
Our Recommended QuickBooks Apps