Set QuickBooks Online up in the wrong order and you will not find out for three months. The transactions go in, the reports come out, and everything looks correct right up to the first GST filing — at which point the numbers do not agree with anything and somebody has to reclassify a quarter of entries by hand.
The order that avoids that is: settings first, chart of accounts second, tax codes third, opening balances fourth, and bank feeds last. Almost every QuickBooks mess we see in class is a file where bank feeds were connected on day one and everything else was decided afterwards, one transaction at a time.
This guide covers the setup itself. It is free and it is genuinely enough to get a small file running properly. What it does not do is teach you bookkeeping — if terms like accrual, trial balance and reconciliation are not yet automatic, that gap is what Bookkeeping Fundamentals is for, and doing it first will save you more time than any software tutorial.
1. Company settings, before anything else
Open Settings → Account and settings and work through all five tabs before you enter a single transaction. Three of these are awkward to change later:
- Fiscal year start. Reports, year-end close and every comparison you ever run depend on this. For most Canadian small businesses it matches the tax year, but not always — confirm it with your accountant rather than accepting the default.
- Accounting method — accrual or cash. Accrual is the default and is what most businesses should be on. Changing it later does not rewrite history; it changes how history is reported, which is worse.
- Home currency. Set to CAD. If you invoice in USD as well, turn on multicurrency deliberately — it cannot be switched off once enabled.
In the same place, turn on track inventory only if you actually hold stock, and track classes or locations only if you genuinely report by department. Both add a field to every transaction, and a field that is inconsistently filled in is worse than no field at all.
2. The chart of accounts — shorter than you think
The instinct is to build a detailed chart of accounts so reports are informative. In practice the opposite happens: forty expense accounts means coding decisions get made differently by different people on different days, and the resulting report is precise and wrong.
A workable starting point for a small Canadian business:
- Income — one account per genuinely different revenue stream, not per product. Two or three is normal.
- Cost of goods sold — only if you sell goods or bill materials.
- Expenses — group by how you would want to explain them, and keep it under about twenty accounts. Meals, vehicle, insurance, professional fees, subscriptions, and so on.
- Assets and liabilities — one account per real-world account. Every bank account, every credit card, the GST/HST payable account, and any loan.
Two Canadian specifics worth setting up now: a GST/HST payable liability account (QuickBooks creates this when you enable sales tax) and, if you run payroll, separate liability accounts for source deductions so the CRA remittance is a single obvious number rather than something you calculate.
Delete or make inactive the sample accounts you will not use. An unused account in the list is an invitation to code something to it by accident.
3. Sales tax — the step Americans do not have
This is where QuickBooks files go wrong in Canada, and it is worth doing carefully.
Go to Taxes → Sales tax and set up the agency for your province. QuickBooks will create the standard codes. What it cannot do is decide how your sales are treated, and there are four situations that behave differently:
- Standard rated — GST, or HST at the provincial rate. The common case.
- Zero-rated — taxable at 0%, such as basic groceries and most exports. You still claim input tax credits on related expenses, which is why this is not the same as exempt.
- Exempt — no tax charged and no input tax credits claimable. Certain health, financial and residential rent services.
- Out of province — the rate follows the place of supply, so selling from BC to a customer in Ontario is generally HST at the Ontario rate rather than BC’s GST.
Getting 2 and 3 confused is the most common error, and it is not visible on the face of the return — it shows up as input tax credits you were entitled to and did not claim, or claimed and were not entitled to.
If you are not confident about which category your sales fall into, that is a question for your accountant rather than for a settings screen. It takes them five minutes and it determines every transaction you enter from here on.
4. Opening balances
If the business has been trading, you need a starting point. The clean way is to pick a date — usually the start of a fiscal year or the day you switch systems — and enter the trial balance as at that date, then enter transactions forward from there.
The messy way, which people do because it feels easier, is to import two years of bank transactions and let QuickBooks work it out. It cannot: bank data has no information about receivables, payables, inventory or accruals, so you end up with a cash-basis picture wearing an accrual label.
You will need, as at your chosen date: bank and credit card balances, outstanding customer invoices, outstanding supplier bills, any loan balances, and the GST/HST position. Your previous system or your accountant has all of these.
5. Bank feeds — last, not first
Connect the bank and credit card feeds only once the accounts and tax codes exist. Then the first few weeks of transactions are categorised into a structure you designed, and the bank rules you create afterwards inherit that structure.
Connect them first and every early transaction gets coded into whatever account looked plausible at the time, which is the coding that then gets learned by the rules and repeated automatically. Automation applied to a bad decision produces the bad decision faster.
Two habits worth forming immediately:
- Never accept a feed transaction you do not understand. Leave it for review. An uncategorised transaction is a question; a wrongly categorised one is an error you will not notice.
- Reconcile against the statement, not against the feed. Feeds miss items and occasionally duplicate them. The statement is the authority. The month-end checklist sets out the order.
6. Users and permissions
Add your accountant as an Accountant user rather than as a regular one — it is a separate seat that does not count against your user limit and gives them the tools they need. Give staff the narrowest role that lets them do their job. This is not paranoia; it is so that when something is wrong you can tell who did it.
What this guide does not cover
Deliberately: payroll setup, inventory costing, multicurrency, projects, and anything involving migrating a live file from another system. All four are genuinely harder than they look, and the failure modes are expensive.
They are covered properly in QuickBooks Online Part 1 and Part 2, which are $619 each and run live with an instructor. Part 1 is the setup and daily work above, done on your own file with someone watching; Part 2 is the period-end half — reconciliation, adjustments, payroll and filing.
If your business runs Sage rather than QuickBooks, the same principles apply and the Sage courses cover the equivalent ground. Which package to choose is a separate question, and the honest answer depends on the business rather than on which is better.
Common questions
- Is QuickBooks Online free to try?
- Intuit runs a free trial and frequently discounts the first few months. The trial is long enough to set the file up and decide whether it fits, which is the sensible way to use it — set up the chart of accounts and the tax codes properly during the trial rather than rushing it and paying to fix it later.
- Can I change the chart of accounts later?
- Yes, but it gets progressively more painful. Once transactions are posted, merging or renaming accounts means reclassifying history, and any report you have already sent out will no longer match. Spending an hour on it at the start is the cheapest hour in the whole process.
- Do I need an accountant if I use QuickBooks?
- For anything beyond a very simple sole proprietorship, yes — but a well-kept QuickBooks file makes the accountant cheaper, because they spend their time on advice rather than on cleaning up coding. That is the actual return on doing the setup properly.
- What is the difference between QuickBooks Online and QuickBooks Desktop?
- Desktop runs on one machine with a local file; Online runs in a browser with bank feeds and multi-user access built in. Intuit has moved Canadian small business firmly towards Online, and our public courses teach Online. Our instructors teach Desktop too, so ask about corporate delivery if that is what you run.
- Why do American QuickBooks tutorials cause problems in Canada?
- Sales tax. A US file has no GST/HST, no input tax credits and no provincial variation, so American material either skips the tax setup entirely or configures it in a way that produces a return you cannot file. It is the single most common reason a file has to be redone.