Home
Contents
Legal
Dedicated
Chapter 1
Chapter 2
Chapter 3
Chapter 4
Chapter 5
Chapter 6
Chapter 7
Chapter 8
Chapter 9
Chapter 10
Chapter 11
Chapter 12
Chapter 13
Chapter 14
Chapter 15
Chapter 16
Chapter 17
Chapter 18
Chapter 19
Chapter 20
Chapter 21
Chapter 22
Chapter 23
Chapter 24
Chapter 25
Chapter 26
Chapter 27
Chapter 28
Glossary
Error
Messages

Chapter 4

Back to Previous Chapter

Forward to Next Chapter

Back to Contents

 

Advanced Search

 

The Chart of Accounts in QuickBooks

Quickbooks will display the Chart of Accounts if you click on Lists then Chart of Accounts.   The chart shown is more of a sampler than a realistic chart of accounts.

 A chart of accounts may have been set up, if you set up your company using the interview.  That can be customized, better now than later.  Once transactions are entered, modification of the chart of accounts is more complex.

Organizing a chart of accounts requires a list of account types XE "account types" .  The tabulation below is for planning, and follows the sequence used in the chart of accounts.  All types of accounts are included, but some will not be seen as choices in the New Account dialog box.   This is explained in the descriptions below the lists, which tell the unique features of the various account types.

BALANCE SHEET ACCOUNTS

[Asset Accounts]

            Bank

            Accounts Receivable

            Other Current Assets

            Inventory assets

            Fixed Assets

                        Depreciation

            Other Assets

 

[Liability Accounts]

            Accounts Payable

                        Sales Tax Payable

            Credit Card

            Other Current Liabilities

            Long Term Liabilities

[Equity Accounts]

            Opening bal Equity

            Equity

            Retained Earnings

            Net Income (or Current Earnings)

 

INCOME AND EXPENSE ACCOUNTS

            Income

            Cost of Goods Sold

            Expense

            Other Income

            Other Expense

 

NON-POSTING ACCOUNTS

            Estimates

            Purchase Orders          

-----------------

Sub-accounts

Bank Account is  XE "bank account" the simplest, XE "asset account"  most obvious and universal asset, and the easiest to give a definite value.  Checking, savings, and anything like a bank account, such as money market accounts, go here.  Regular reconciliation is necessary, due to some structural conditions within the program (related to Condense Data, Chapter 25.)

Bank account operation is used in the next chapter as the example account for navigating and operating within QuickBooks. The discussions of using other accounts assume a knowledge of how bank accounts operate.

Accounts Receivable is one  XE "accounts receivable" account. (The plural is a concession to thinking of customers as accounts.)   

CAUTION:  Not more than one account of this type should be used, unless you have strong, definite reasons for more (and a liking for complexity.)  No receivables XE "receivables"  account is necessary, if you operate on a cash basis and record all income in a bank account.

Receivables handles two things in QuickBooks.  The less obvious is the recording of income (unless recorded directly in a bank account.)  More visibly, money owed by customers is tracked, as are payments (or lack of payments.)  If you do not have a receivables account before you record your first invoice, the program will add such an account (not in DOS versions.)

Other Current Asset is a home for any asset, other than the two above, that you will possess for a short time , typically less than a year.  This could include Petty Cash, but that is more easily handled  as a bank account.  A current asset may be converted to cash, or expended in the course of doing business. 

Inventory assets are a special  XE "inventory asset:account" form of current asset. Handling inventory requires that an asset account be set up for each differently priced item in inventory.  A suitable account type is Other Current Asset.

Fixed assets usually include vehicles, but not because they often need to be fixed.  Fixed assets include anything of value that will be yours over a longer period of time.  Tradition puts the break at one year, but an additional criterion would say that assets are fixed if they are subject to depreciation.

Depreciation is not an account  XE "depreciation account" type.  It is most conveniently shown as a sub -account of an asset, with a negative value.  An account of this type is called a contra-asset XE "contra-asset" .  (In the DOS versions, sub-accounts of balance sheet accounts are not allowed.  The asset account can be followed with another of the same name plus Depr, and a negative balance.)

Other asset is exactly that, anything you have, of definite value, that does not fit in above.

Accounts Payable is  XE "payables"  XE "accounts payable" usually a home for your expense transactions (unless they are entered directly into a bank account.) The amounts you owe vendors, or have paid vendors, are tracked here.  (Whether or not your want to pay is qualitative, and is not entered into books of account.)  

CAUTION

Like receivables, you normally use one and only one payables account.  A second (or more) payables account should be used only if definitely necessary. All of your vendors (except sales tax) can be tracked in one payables account.

Sales Tax Payable will be  XE "sales tax payable" set up if you checked that you do collect sales tax.  Note that this type is missing from the New Account type list.  It cant be added from within the chart of accounts.

Credit Card Accounts are XE "credit card"  similar to payables as a home for expense transactions.  Unlike payables, you may want several, one for each credit card. These accounts are very convenient and efficient for a person using credit cards.  In the accrual method, the expense is incurred when you record the credit card purchase.  Paying off the credit card debt is not an expense.  This transaction decreases cash and decreases the debt, with no change in equity.

Other Current Liability is any debt that you will pay within a year, that is not included above.

Long Term Liabilities are debts  XE "long-term liabilities" intended to continue for more than a year.  And before you ask, QuickBooks (through versions 5.0) does not automatically calculate amortization XE "amortization"  XE "loan amortization" .  Intuit knows the users want amortization.  So far, only Quicken has this feature.

Equity represents  XE "equity account" the owners interest in the business.  The number and names of equity accounts is a matter of owners and/or accountants preference.  You can set up whatever equity accounts you want. 

NOTE: QuickBooks will include the next two accounts, no matter what you do.  Another may be added, depending on what you do.

Retained Earnings (name  XE "retained earnings" varies with versions) or prior earnings, is one account containing a summary of  prior years results.  It is the net bottom line of all prior years P&L reports, except profits that have been transferred to another equity account, or paid out.  (Does not exist in version 1.)

This account is built into QuickBooks, and cannot be deleted.  It can be renamed, which is likely to cause confusion.  Whatever name it bears, QuickBooks will use it for its designed function.

Net Income XE "Net Income"  is the bottom line for the P&L report, this year to date.  You cant catch this one, because it is not on the chart of accounts.  It does appear on the balance sheet, showing the increase in equity due to current operations.  Earlier versions called this account Current Earnings XE "Current Earnings" .

Opening Bal Equity XE "Opening Bal Equity"  is a QuickBooks default equity account.  It results, depending on version and situation, from entering opening balances in asset or liability accounts.  It can be renamed, but it will remain as the default equity account.  If you prefer to maintain control, avoid entering opening balances.  They can always be entered later.

Income is the XE "income account"  increase in equity due to money or value coming into the business. Income ordinarily just means income, but in the graphics versions, it has the implication of ordinary income or operating income.  It works as gross income, not net. 

Cost of Goods Sold  (only in  XE "cost of goods sold" graphics versions) is exactly that. It is a special expense account collecting the cost of merchandise you have sold.  It is the direct expense you have incurred to get the goods in your possession and ready for sale, and usually includes inbound transportation. This is a line on US income tax returns.

Expense is XE "expense account"  the decrease in equity due to money you have spent to do business. In the graphics versions, it may be restricted to direct expenses. 

Other Income   (graphics versions) is positioned outside the traditional sequence, which allows a distinction between ordinary income and income out of the usual line of business.  Other Income and Other Expense are reported separately on the P&L report, allowing display of net operating income and net extraordinary income .  This is an example of the flexibility built into Quickbooks, allowing you to report as is appropriate to your circumstances.  You and your accountant can elect any use of these accounts.

Other Expense (graphics versions) includes business expenses not related to the usual line of business.  Again , this is very much a matter of owners and accountants choice.  On the Income Statement, it is subtracted from Other Income to calculate a figure for net other income.

Estimates and Purchase Orders are included as Non-Posting Accounts, to provide a home for these forms .  Amounts are not posted to your books of account, and will not appear in the balance sheet or income statement.   Estimates XE "estimates" are described in the chapter on Estimates and Job Tracking, and purchase orders XE "purchase order"  are described in the payables chapter.

Sub-Accounts are allowed. XE "sub-accounts"   In the graphics versions, most accounts can have sub -accounts. They function generally as partitioned areas of the parent accounts.  In the DOS versions, only income and expense accounts can have sub-accounts.  The fact of being a sub-account is shown by the sub -account being below the parent (higher-level) account, and indented.  Sub-accounts are and can only be of the same type as the parent account or higher sub-account.

Contents |   Up   |   Previous   |   Next

About BlockTax   |   Awards   |   Contacts   |   QB Newsletter   |   Home   |   Legal
Last modified: May 21, 2004