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Understand the chart of accounts in QuickBooks

The chart of accounts is a list of all your company’s accounts and balances. QuickBooks uses this list to organize your transactions on your reports and tax forms. Your chart of accounts also organizes your transactions so you know how much money you have and owe in each account.

Your chart of accounts organizes and gives you a view of your:

  • Assets: This includes vehicles, equipment, buildings, and other assets used for business.
  • Liabilities: These are amounts you owe but haven't yet paid.
  • Income: This is the money that you get from your normal day to day business tasks such as sales revenue or income for services rendered.
  • Expenses: This is the money that you spend on expenses related to normal business operations such as advertising and promotion, office supplies, and rent.

QuickBooks automatically creates your chart of accounts based on the industry and type of company you choose when creating your company file. If you just created your file, make sure to record the accounts' opening balances.

How to access your chart of accounts

In QuickBooks Online:

Select Settings ⚙, then select Chart of accounts.

In QuickBooks Desktop:

Select Chart of accounts from any of the following QuickBooks menu: Company, Lists, or Accountant (if you’re using an Accountant version).

Types of accounts

There are two main account types in QuickBooks: Balance Sheet accounts and Income and expense accounts.

Balance Sheet accounts are accounts that appear on your Balance Sheet report. They include your businesses:

  • Assets, like bank accounts and equipment.
  • Liabilities, like credit cards and bank loans.
  • Equity, like retained earnings and opening balances.

Each account has its own register. This is where you go to see every transaction included in your account and their balances. These accounts are on your balance sheet report.

Account What for When to add
Accounts Payable (A/P) Tracks transactions related to money you owe to vendors. Most companies require just one AP account and QuickBooks creates this for you the first time you enter a bill. Your accountant can advise you of the circumstances that would require you to create an additional Accounts Payable account.

You can use accounts payable reports and graphs to track the:

  • Vendors you need to pay
  • Outstanding bills you need to pay
  • Amounts you owe your vendors
Accounts Receivable (A/R) Track transactions related to customers who owe you money. Most companies require just one AR account, and QuickBooks creates this for you the first time you create an invoice. Your accountant can advise you of the circumstances that would require you to create an additional Accounts Receivable account.

You can use accounts receivable reports and graphs to track the:

  • Customers who owe you money
  • Invoices that are unpaid
  • Number of days that an invoice is past due
Bank Track business checking, savings, money market, and petty cash accounts. You can also add bank accounts to track your cash in drawer amount if you have a cash register.
Credit Card Credit card purchases for the business. You can add multiple business credit card accounts if:
  • You have one or more employees who need a company credit card to make business-related purchases.
  • You want to use different cards for different types of purchases (one for travel expenses, one for office supplies, one for building supplies, etc.).

Note: If you have multiple business credit cards for one charge account, create only one Credit Card account for the statement.

Equity The net worth of the company. It represents the difference between your liabilities and assets. If you sold all your assets today, and if you paid off your liabilities with the money received from the sale of your assets, the money you would have left is your equity. During your company setup process, QuickBooks creates two Equity accounts – Opening Bal Equity and Retained Earnings (actual accounts names are based on the business entity you select during the setup interview). You can also create additional Equity accounts to track:
  • Owner’s equity
  • Owner’s draws
  • Capital investments
  • Capital stocks
Current Asset Assets that you can easily turn into cash such as checking accounts, savings accounts, money market and CD accounts. You can also add Current Asset account to track:
  • Accounts receivable
  • Inventory
Fixed Asset Items with a minimum cost that you have to sell in order to generate cash. Examples are automobile, equipment and land. Consult your accountant or tax prepare to determine the actual minimum cost that you should use to determine fixed asset. You can also add Fixed Asset accounts to track:
  • Construction and landscaping machines; music, photographic, and printing equipment
  • Fixtures and fittings (automotive or photographic shop fixtures, etc.)
  • Office equipment (cell /telephones, computers, copiers, printers, fax machines, projectors, etc.)
  • Office furniture (chairs, desks, filing cabinets, lamps, etc.)
Other Current Asset Items that can be converted to cash or used up within one year such as prepaid expenses, employee cash advances, inventory, or loans from your business. You can also use it to track supplies, deferred income taxes, estimated future income tax benefits, security deposits, and investment property.
Other Asset Items that are neither Fixed Asset nor Other Current Assets such as goodwill, long term notes receivable and security deposits that have been paid by you. You can also use Other Asset for tracking Intellectual property, confidential information, copyrights, designs, formulas, patents, and trademarks.
Long Term Liability Money that your business owes and expects to pay back over more than one year such as Mortgages, Long-term loans, and notes payable. You may also add the account to track Bonds payable, Lease payments, and Deferred income tax payments.
Current Liability Money that your business owes and expects to pay within one year such as Sales tax, Security deposits, and payroll taxes. You can also use it to track benefits, contracts, entitlements, and salaries and wages.

Note: If you have one or more loans for your business, you should create different Loan accounts for each one. For example, if you have loans to fund for equipment, inventory, or working capital, you should create different Loan accounts to track the principal you owe for each one. When you create the Loan account, QuickBooks sets the account type to Other Current Liability.

Income accounts track where your money is coming from. Expense accounts track what your company is spending. When you record transactions to your balance sheet accounts, you usually assign the transaction to one or more income expense accounts.

Note: QuickBooks doesn’t show balances for income and expense accounts in the chart of accounts. To see these balances:

  1. Go to the Reports menu.
  2. Then select either Profit and Loss or Profit and Loss Detail.
Account What for When to add
Income Money that you get from your normal day to day business task such as sales revenue, professional fees, reimbursable expense or income for services rendered. Aside from tracking product-related sales, service-related sales, and discounts, you can also add income accounts to track:
  • Residual income from commissions you receive
  • Leveraged income from work others perform for you, such as sub-contractors
  • Income you receive as a result of franchising your business to others
  • Fees you receive from seminars or classes you give
Other Income Categorizes income you earned outside of the normal business operations like Dividend income, interest income, and Insurance reimbursements. You can also add this account if you need to track:
  • Investment interest
  • Profit from the sale of non-inventory assets
Expense Money that you spend. Use it for tracking expenses related to the normal business operations such as advertising and promotion, office supplies, insurance, legal fees, charitable contributions, and rent. You can also add expense accounts to track:
  • Business-related travel costs
  • Business-related seminars or conferences you attend
  • Dues or subscriptions related to your business
Other Expense Expenses that are outside of your normal business, such as a loss on the sale of an asset or stockbroker fees, corporation taxes, penalties, and legal settlements. You can also add this account to track any expense that is occasional, or expenses that do not have a direct impact on your business, such as:
  • Traffic tickets
  • Lawsuits

In reports, other expenses are reported separately from your regular business expenses, so you can easily distinguish between those that are ongoing, and those that are occasional.

Cost of Good Sold/ Job Costs These are the cost associated with your line of business. If you are a home builder, the job cost is whatever costs you to build a home. Job costs may include materials, subcontractors, equipment rental, and/or direct labor. If you sell products, this includes cost of inventory, raw materials, freight charges and any labor cost that you incurred to finish the product. You may also add COGS to track:
  • Equipment rentals
  • Overnight mail
  • Court costs (for an attorney's office)
  • Blue prints (for an architect)
  • Purchases made on behalf of a customer (such as furnishings bought by an interior designer or auto parts bought by a mechanic)

Accounts that QuickBooks sets up for you

When you create a new company file, you’ll need to choose a type of company. This will determine the chart of accounts company file QuickBooks will create for you.

QuickBooks creates the following accounts as you go.

Account What it is Automatically added by QuickBooks when you...
Accounts Payable (A/P) Record of the outstanding bills of the business. If your business uses multiple A/P accounts, QuickBooks will let you choose the account you want to use when you enter and pay bills. Create a bill for the first time.
Accounts Receivable (A/R) List of transactions related to customers who owe you money. If you need to use more than one A/R account, the program will let you choose the A/R account that you want to use when you create an invoice or receive a payment. Create an invoice for the first time.
Opening Balance Equity Ensures that you get a correct balance sheet for your company, even before you've entered all your company's assets and liabilities. Enter the opening balance for a balance sheet account.
Payroll Expense Tracks payroll items (expense) for the company, including salaries, wages, bonuses, commissions, company contributions such as company paid health plan and company paid portion of taxes such as Social Security and Medicare. Turn on payroll for the first time.
Payroll Liabilities Tracks taxes you deduct from your employees' salary until you turn them over to the government, including federal and state income withholding taxes, local taxes and the employee paid taxes like Medicare and Social Security. Turn on payroll for the first time.
Purchase Orders Non-posting account that does not affect your balance sheet. Create a purchase order for the first time.
Retained Earnings Tracks profits from earlier periods which have not yet been distributed to owners. At the beginning of fiscal year, QuickBooks automatically transfers net income into your retained earnings account. Set up a new company file.
Sales Tax Payable Tracks all sales tax you collect and pay. Turn on sales tax.
Uncategorized Expense Enter an opening balance for a vendor.
Uncategorized Income Enter an opening balance for a customer.
Undeposited Funds Holds the payments collected until you deposit them to the bank. Record a payment for an invoice or sales order for the first time.
Inventory Asset Tracks the current value of your inventory. Add an inventory part or assembly for the first time.
Reconciliation Discrepancy Tracks reconciliation adjustments. Enter an adjustment reconcile with discrepancies.

Here are downloadable Excel spreadsheets describing each account under each industry type:

Open the Excel spreadsheet that corresponds with your version of Excel.

From the downloaded Excel sheet, choose your industry from the Industry dropdown menu. Then select your business type.

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Common chart of accounts tasks

Chart of accounts is the nuts and bolts of your accounting. It’s already set up and customized for you. But if you need new accounts to keep track of your transactions, you can always add more.

Although you are not required to use account numbers, your accountant may recommend that you do so. QuickBooks inserts account numbers before account names in the chart of accounts. The account number also appears in reports that list the account and on graphs.

Default account numbers are assigned to accounts based on account type and within ranges based on generally accepted accounting principles (GAAP). You can change an account number at any time.

Sample standard account numbers:

10000 – 19999 Assets
20000 – 29999 Liabilities
30000 – 39999 Equity
40000 - 49999 Income or Revenue
50000 - 59999 Job Costs/Cost of Goods Sold
60000 - 69999 Overhead Costs or Expenses
70000 - 79999 Other Income
80000 - 89999 Other Expense

Turn on account numbers in QuickBooks Desktop:

  1. Go to the Edit menu then Accounting.
  2. In the Company Preferences, check the Use account numbers box.
  3. Select OK to close the preferences window.

Turn on account numbers in QuickBooks Online:

Here’s how to turn on account numbers in QuickBooks Online.

Make an account inactive in QuickBooks Online 

Follow these steps to make an account on your chart of accounts inactive in QuickBooks Online.

Make an account inactive in QuickBooks Desktop:

  1. Access your Chart of Accounts.
  2. Select the account you want to hide.
  3. Select the Account drop-down at the bottom of the list then choose Make Account Inactive.

To see your active accounts:

  1. Access your Chart of Accounts.
  2. Put a checkmark in the Include inactive box at the bottom.
  3. Find the account you want to show/make active again.
  4. Select the Account drop-down at the bottom of the list then choose Make Account Active. You can also select the X icon right before the Name column to make an account active.

Online Banking (also known as Bank Feeds) is one of QuickBooks' most helpful and time-saving features. If you connect an account, QuickBooks automatically downloads and categorizes your bank and credit card transactions for you. Then all you have to do is approve the work.

If you’d like to see the balances of non-balance accounts, you can choose to add the QuickBooks balance and your bank balance to your chart of accounts.

In QuickBooks Desktop:

  1. Go to your chart of accounts.
  2. Select the Accounts drop-down then choose Customize Columns.
  3. Under Available Columns, select Balance then Add.
  4. Select OK.

In QuickBooks Online:

  1. Select Settings ⚙, then select Chart of Accounts.
  2. From the Action column, select Settings ⚙.
  3. Select QuickBooks Balance and Bank Balance.
  4. To close the drop-down, select Settings ⚙.

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