The Chart of Accounts in QuickBooks is simply a list of all the accounts that help in classifying the assets, income, and owner’s equity amount. In other words, it is the list of the accounts and balances of the organization. This, in turn, assists in comprehending how much fund the company has, how much it actually owns and how much it needs to pay, by delivering a complete and reliable financial report. Know steps to set up chart of accounts in QuickBooks.
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In a true sense, an organized Chart of Accounts offer an overview of how your business is doing and thus it is considered a significant aspect of the accounting system. Hence, it is vital to know the right method to set up a chart of accounts in QuickBooks.
What is a Chart of Accounts (COA) in QuickBooks?
A chart of accounts (COA) is a tool for organizing finances that gives a detailed breakdown of all accounts in a company’s general ledger, divided down into subcategories. A list of all the accounts that QuickBooks utilizes to keep track of your financial data may be seen in the chart of accounts. These accounts are used to classify transactions on a variety of forms, including tax forms, reports, and sales forms. Every account has a transaction history that details how much money you have in it and how much you owe.
A chart of accounts is used to arrange money and provide interested parties with a deeper understanding of a company’s financial health, such as shareholders and investors. Each account on a chart of accounts often has a name, a short description, and an identifying code to make it simpler for readers to find individual accounts.
You must first understand the elements that make up a chart of accounts in order to better comprehend the balance sheet and other pertinent financial statements. It might be simpler for you to obtain financial information if you know how to maintain your company’s organizational structure organized.
On the chart of their firm, some people could additionally show stock accounts. After all operational costs and income accounts have been taken into account; everything left over is represented by an equity account. An account within each category is represented by each line item. A few of the charts of accounts may additionally show the equity accounts, which reflect whatever is left over after all operational costs and income accounts have been taken into consideration.
How Many Categories are there in the Chart of Accounts?
The Chart of Accounts is simply a list of account numbers along with names that are important to the company. Normally, the chart of accounts has four different categories. The four groups in a standard Chart of Accounts include:
- Asset Accounts
- Liability Accounts
- Income Accounts
- Expense Accounts
In general, asset accounts include anything that has value, including real estate, stock, automobiles, land, and collectibles. As a result, this kind of chart of accounts makes it easier to keep track of expenses like depreciation as well as the price you paid for a property. This chart of accounts also includes items that are liquid, such as checks and other bank accounts.
The liquid items, such as checking accounts and other bank accounts, are also included in the asset accounts. Accounts receivable and notes receivable are examples of additional asset accounts. To make it easier to track different components, the charts of accounts simplify different asset accounts by grouping them into line items.
To make it easier to handle different components, the chart of accounts streamlines diverse asset accounts by classifying them into line items. Asset accounts may be perplexing since they keep track of both the price you paid for each asset as well as procedures like depreciation. Like:
- Items like Accounts receivable would be considered additional asset accounts.
- Notes receivable
- Anything you possess that is valuable, such as building
- Liquid assets like Checking accounts
- Other bank accounts
Mortgages, payroll taxes, promissory notes, credit card balances, bank loans, personal loans, and income tax payables are among the items included in the Liability Accounts. Make sure to include the loan’s amount when you add a loan to this account. You will have to exclude the accrued interest and only record the principal amount. You will split the payment into an amount deducted from what is owing and an amount for the interest paid, which will go into an expenditure account when you approach each monthly payment deadline and submit the payment in the accounting system.
Any outstanding payments that are due within the year are categorized as current liabilities, whereas payments that are due more than a year from the report date are classified as non-current or long-term obligations. Like:
- Non-current or long-term liabilities like Mortgages
- Personal loans
- Income taxes payable
- Bank loans
- Credit card balances
- Payroll taxes
- Current or short-term liabilities like Accounts payable or bills
- Deferred tax liabilities
If You to make a Company’s Organizational Chart
Follow these guidelines when adding a loan to your company’s organizational chart:
- First, check that you just provide the loan’s principal amount.
- Then Log just the main sum and disregard the accrued interest.
- Each time you make a monthly payment, record it in your accounting software.
- Next, divide the payment into a sum that will be deducted from your debt and a sum for interest paid that will go into an expenditure account.
Cost of sales, costs, additional incomes or expenses, and revenues make up the majority of income accounts. Some of the accounts are the same for all firms, while others are unique to a certain type of business. Some sources of income are straightforward and inexpensive to produce, while others need time, money, and effort.
It is advised to separate line items for various forms of revenue in the chart of accounts. Instead of lumping all of your revenue into one account, it is advised that you think about what different lucrative activities there could be and arrange them according to income kind. It will be easier to handle things once you can pinpoint the areas or activities that generate the most cash flow.
Most new business owners begin by focusing on one or two major categories, such as “sales” and “services“. While some sources of income are simple and inexpensive to produce, others need a lot of work, time, and money. Your chart of accounts could benefit from having distinct line items for various forms of revenue. Like:
- Dividend income
- Contra income
- Sales income
- Rental income
Consider your many profitable pursuits and arrange them according to revenue type rather than putting all of your income into one account. You can operate your firm more effectively when you can determine which places or occasions generate the most income flow.
Imagine, for instance, that you run a business where a variety of goods are sold:
- You may add line items for “revenue from food sold” and “income from books sold” to your chart of accounts.
- Compare each category’s profit margins and cost of goods sold then (which allows you to better determine your financial health).
- Consider anything that brings money into the business, including items like interest income, while generating data for your income accounts category.
You can keep track of all the money you have spent in this account. In reality, it enables you to keep track of the money you’ve lost. It is typically advised to segregate the spending into several accounts, and you even have the option to break up your expenses into subcategories.
Separate accounts for costs are another wise choice. For instance, you might wish to track your charges from several shipping companies individually if you send a lot of things. You may set up sub-categories for the different costs connected to each carrier inside of each line account. More examples of expenditure accounts that your company may utilize are shown below:
- Advertising expense
- Salaries or wages
- Cost of sales
- Depreciation expense
- Interest expense
- Depreciation expense
- Interest expense
What are Tips for Organizing Chart of Accounts?
The following advice or suggestions should be taken into account before you start the process of organizing the chart of accounts.
- A Chart of accounts is a common feature in accounting software. Lines with preset accounts have headers with numbers like 1430.2 and 530.8. These figures may be useful for large companies, but they are typically useless for sole proprietors and small businesses.
- In the beginning, you ought to keep the line items straightforward. Additionally, make sure that the line items have titles that both you and the accountant can understand. You are advised to choose simple titles.
- Another thing to keep in mind is to refrain from adding a new line item for every transaction because this would clutter the entire chart of accounts. Use the subheads in the accounting software in place of that.
- As an example, when creating a new account for PayPal fees, you may simply create a sub-account beneath the bank fees rather than a separate line.
Steps to Set Up Chart of Accounts in QuickBooks
Here are the right steps to set up a Chart of Accounts in QuickBooks:
Step 1: Choose the Lists that says Chart of Accounts, as displayed on the computer screen.
Step 2: On the computer screen, QuickBooks will show the Accounts menu. When you press click on the tab, the Account Menu Options New will be displayed on your particular computer system screen.
Step 3: Now add a new account. QuickBooks will display Add New Account option on the computer screen.
Step 4: Utilize the Account Type buttons. QuickBooks offers various account types such as Fixed Asset, Credit Card, Accounts Payable, Cost of Goods sold, Income loan, Expenses, Accounts Payable, Accounts Receivable, Long-term liability, Other Assets, Other Expenses, etc.
Also, with the help of the accounts, you will be able to know about the place where your particular data is reported.
Step 5: Hit on Continue. Now QuickBooks will display the second Add Account screen on your particular computer system. Notice the account name that will be displayed in the financial statements. Now, you need to make use of the particular Account Name Box.
Step 6: Review the sub-account. After you have chosen the sub-account of the check box, you must provide a name to the particular Parent account.
Step 7: If QuickBooks comprehends that you have access to other currencies, then it will notify you to search for such customers, vendors, bank accounts, etc., who utilize diverse currencies.
Step 8: New Account Description is not needed. There is no need to define the new account. QuickBooks uses only definite account names in the particular financial statements and hence no description is needed as such.
Step 9: In the Add New Account screen, there will be a credit card account type version. It will help in saving all the necessary credit card details and account information.
Step 10: Identify the Tax Line. On the Tax Return of the corporation, the cash account balances will be registered. If you still need to add a bank account, then it is highly recommended to use the drop-down list in Tax-Line mapping.
Step 11: Lastly, you need to hit the Next tab to save the New Account details and then you will show the Add New Account window. After both the accounts are set up, new accounts will display in the chart of accounts list.
How to Use QuickBooks Chart of Accounts?
Here is how you access the QuickBooks Chart of Accounts for QuickBooks Desktop:
Step 1: Start by selecting the Chart of Accounts from the QuickBooks menu.
Step 2: Navigate to the Company option and then press on Accountant or Lists.
Here is how you access the QuickBooks Chart of Accounts for QuickBooks Desktop:
In QuickBooks Online, press on the Settings icon and then select Chart of Accounts.
All the steps mentioned above will assist you in monitoring your business activities on a regular basis and will help you to Set up the Chart of Accounts in your particular QuickBooks software.
How the Chart of Accounts Works in QuickBooks Desktop?
The balances of each account in your company are shown on the chart of accounts. This list is used by QuickBooks to keep track of funds, liabilities, incoming cash, and outgoing cash. You may view the transaction history for each account in the register. Run a brief report to get more information. Go through this blog, as all the information related to the chart of accounts works in QuickBooks Desktop.
Account types on the Chart of Accounts
You can categorize transactions using different account types provided by your Chart of Accounts:
- Assets: Purchases on things like buildings, machinery, and vehicles used by your company.
- Liabilities: Liabilities are sums of money you owe but haven’t yet paid.
- Income: Sales transactions for services sold and products.
- Expenses: Rent, office supplies, advertising and promotion costs, and other costs associated with running a business.
Open Your Chart of Accounts
First, You have to select Company, then click on Lists, or Accountant and then click on Chart of accounts.
Accounts QuickBooks Sets up for you
The same set of standard accounts is provided to everyone. Accounts are added by QuickBooks based on your industry. If the account you require isn’t listed, manually add it. A user account can also be edited, deleted, or hidden.
- Accounts Payable (A/P): It tracks your business bills and bill payments. When entering and paying bills, QuickBooks gives you the option to select one of your company’s multiple A/P accounts. It creates a bill for the first time.
- Opening Balance Equity: Ensures that opening balance transactions are offset in order to keep the Balance Sheet in balance. Enter the account’s opening balance for the balance sheet.
- Accounts Receivable (A/R): It keeps track of customer payments and invoices. When you invoice or receive payment, QuickBooks gives you the option to select one of your A/R accounts if you have more than one. It is automatically added by QuickBooks when you create an invoice for the first time.
- Payroll Expense: Keeps track of the company’s payroll expenses, such as salaries, wages, bonuses, and commissions. This includes contributions made by the business, such as paid health insurance, as well as tax payments made by the business, such as Social Security and Medicare. It is automatically added by QuickBooks when you turn on the payroll for the first time.
- Payroll Liabilities: Till you hand them over to the government, it keeps track of taxes and deductions made on employee salaries. This covers local, state, and employee-paid taxes including Medicare and Social Security, as well as federal and state income withholding.
- Retained Earnings: QuickBooks deposits net income into your retained earnings account at the start of each fiscal year. It is automatically added by QuickBooks when you set up a new company file.
- Sales Tax Payable: Keep a record of all the sales tax you collect and pay. Unpaid sums constitute a debt owed to the sales tax jurisdictions. In this, it is automatically added by QuickBooks when you turn on sales tax.
- Uncategorized Expense: Expenses like an opening vendor amount that is not assigned to a specific cost account. When you enter an opening balance for a vendor then it will automatically be added by QuickBooks.
- Uncategorized Income: Income that is not assigned to a particular account, such as an opening customer balance. When you enter an opening balance for a customer then it will automatically be added by QuickBooks.
- Undeposited Funds: It tracks customer payments when you collect until you deposit them.
- Inventory Asset: In this value is tracked down by your inventory. In this, you can add an inventory part or assembly for the first time.
- Reconciliation Discrepancy: Keeps track of transactions that have changed since the last account reconciliation that was previously reconciled. You can enter an adjustment to reconcile discrepancies.
Add Account Number
Account numbers are not required, However, They can be requested by your accountant. In the chart of accounts, QuickBooks adds account numbers before account names. The default account number can be changed at any time.
How to Modify an Account from the Chart of Accounts List?
If you want to modify an Account from the Chart of Accounts List, then follow the steps that are mentioned below:
Choosing an Account
- First, You need to select the account that has to be changed is the first step.
- No matter the time, you may change the accounts in QuickBooks.
- After that, you should scroll down to the account that has to be changed on the chart of accounts.
- Then click on the drop arrow, which is next to Run Report.
- Finally, select the Edit option.
Adding Changes to the Account
- The Account Name and Account Description fields can then be modified in the window that is displayed below.
- The important thing to remember in this situation is to avoid changing the category type if you have previously used the account to record transactions.
- The financial statements might be seriously impacted by doing this.
Click on Save and Exit
The work will be lost if you forget to save the modifications before closing the account.
However, for those, who are new to this accounting software, it may seem difficult to incorporate those steps on their own.
But don’t worry. For all such users who are performing these tasks or have different questions, you can always connect with our customer support team. Our professionals are skilled and offer extensive services 24/7.
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Frequently Asked Questions (Faqs)
What are Asset Accounts?
Asset accounts normally contain things that have some real value like vehicles, inventory, building, land, valuables, etc. In a general sense, such a type of Chart of Account aids in monitoring how much has been invested in property. Furthermore, in the Chart of Accounts, other things are also included like cheques, bank accounts, etc.
What are Liability Accounts?
The Liability Account comprises items like payroll taxes, mortgages, credit card balances, promissory notes, personal loans, bank loans, and income tax payable. When the loan is added to this account, do make sure the sum of the loan is added.
What are the Important Pointers for Organizing the Chart of Accounts?
Before you start with the steps to arrange the chart of accounts, the points below should be considered significantly:
Make sure to keep the line items are not complicated in the first step. Also, make sure that the line items have specific titles, which the accountant can make sense of. It is highly recommended to use straightforward titles.
One important point that you must consider is to dodge making a new line item for every transaction since it would confuse the overall chart of accounts. Rather, make sure that you use the accounting software’s sub-headings.