Welcome to the FitSmallBusiness QuickBooks Online training course! In this lesson, we’re going to cover how to set up expenses in QuickBooks Online. You can follow along on your own QuickBooks Online account. If you don’t have one already, click here to sign up for a free 30-day trial and follow along below.
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.
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The Importance of Setting Up Expenses
One of the primary reasons why small businesses want to use QuickBooks is so that they can track their expenses. QuickBooks is designed to keep track of expenses from downloading your banking transactions to writing checks. In this setup, you can customize how to enter expenses in QuickBooks by selecting one or more of the following options:
- Entering expenses in QuickBooks by customer so that you can run profitability reports
- Billing customers back for items that you purchased on their behalf
- Managing bills through accounts payable
- Creating purchase orders to send to your suppliers
If you do not need to customize QuickBooks for any of the options mentioned above, then you can skip this setup.
How to Set Up Expenses in QuickBooks
The bills and expenses set up is the fourth tab in the Account and Settings section. The selections that you make here will affect how to enter expenses in QuickBooks, including how you pay your bills and track your expenses.
Listed below are seven features that affect how to enter expenses in QuickBooks:
Bills and expenses feature setup in QuickBooks Online.
Below, you will find a brief description of each feature along with how we would set this up for our fictitious company, Paul’s Plumbing:
- Show items table on expense and purchase forms: This feature adds a product/service table on expense and purchase forms so that you can itemize products and services that you have purchased.
Example: Paul likes details. He is going to activate this feature because he wants to be able to see the details easily of what he has spent his money on when he looks at his checks and purchase orders in QuickBooks. - Track expenses and items by customer: If you purchase an item on behalf of a customer and you want to link this item to that customer, then this feature will add a customer column on expense and purchase forms.
Example: While Paul typically bills his customers a rate that includes any materials and parts he uses for the job, there are occasions when his customers make special requests. For example, a customer wants a specific brand of kitchen sink. Paul will purchase the item on behalf of the customer and bill them back for the actual cost of that sink. This feature works well for these types of situations so Paul will activate it. - Make expenses and items billable: This feature will add a billable column on expense and purchase forms so that when entering expenses in QuickBooks, you can add billable items on sales forms to charge customers for items purchased on their behalf.
Example: This feature complements the track expenses and items by customer feature. It will add a column next to the customer column so that Paul can place a checkmark in it to mark it as a billable item. QuickBooks will keep track of all billable items. When Paul is ready to create an invoice for a customer who has billable items, QuickBooks will provide him with an alert that he has billable items to add to the customer’s invoice. - Set up a default markup rate: This feature is only available if you have turned on the make expenses and items billable feature (above). It allows you to set a default markup rate for items you plan to bill your customers for.
Example: In general, Paul prices his services in a way so that he typically does not need to mark up items that he bills back to his customers. However, there are those occasions when he has to go out of his way for specialty items that customers might ask for. In those cases, having the ability to mark up items would be great. So, he will set his default markup at 30 percent. - Track billable expenses and items as income: This feature is only available if you have turned on the make expenses and items billable feature (above). You can choose to track this income in one account or multiple accounts. Refer to the chart of accounts set up lesson to learn how to create new accounts.
Example: Since Paul does mark up specialty items, he will go ahead and select to track billable expenses and items as income in a single account. - Charge sales tax: This feature should be activated if you need to charge your customers sales tax.
Example: Since Paul purchases the supplies that he needs on behalf of his clients, he does not charge his customers sales tax and does not need to turn on the sales tax feature. - Default bill payment terms: This feature allows you to set default payment terms for all bills that you enter into QuickBooks. If the payment terms vary by vendor, you can adjust them in the vendor profile when you set up your vendors in QuickBooks. By setting up payment terms in QuickBooks, you will receive reminders when a bill is coming due.
Example: Paul has established a good rapport with all of his suppliers. As a result, he’s got 30-day terms with all of his suppliers so that he will set the default at Net 30 for his payment terms. - Finally, save your changes.
- Show items table on expense and purchase forms: This feature adds a product/service table on expense and purchase forms so that you can itemize products and services that you have purchased.
Benefits of Setting Up and Entering Expenses in QuickBooks
As discussed, the selections that you make when setting up expenses affect how your bills and expenses are recorded and paid in QuickBooks. There are several benefits to taking the time to do this setup.
1. Always Pay Bills on Time
Setting up default payment terms in QuickBooks will create an alert that you will receive to notify you when a bill is coming due. Each time you log into QuickBooks, you will see a reminders list that includes supplier bills that are coming due. These reminders will help you to stay on top of your outstanding accounts payable balances so that you can maintain a good credit rating with your suppliers.
2. Get Paid for All Items Purchased on Behalf of Your Customers
QuickBooks helps you to keep track of any items that you have purchased on behalf of your customers. The “mark expenses and items billable” feature allows you to tag an expense with the customer who needs to be billed back for that item. This is a much easier way to ensure you are reimbursed for these items as opposed to trying to keep these receipts in a shoebox or using an Excel spreadsheet.
Check out our Best Receipt Scanner App guide to learn how you can get rid of that shoebox and keep your receipts organized throughout the year.
3. Track Sales Tax
If you sell products that are subject to sales tax, you can set up each county that you need to collect sales tax for in QuickBooks. When you sell a product, QuickBooks will calculate sales tax for you automatically. In addition, you can run reports that will show you how much sales tax you need to remit to your state.
How to Enter Expenses in QuickBooks Wrap Up
That wraps up the section on Setting Up Expenses. The next lesson in our QuickBooks Online Training Course will be How to Set Up Advanced Settings in QuickBooks Online. In this course, we will show you how to set up custom settings for your financial reports.
To learn more about managing income, expenses and reporting in QuickBooks download our free 39-course QuickBooks tutorial here.
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To access this course or any of the others in the series, click here.
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