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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
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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 can’t 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 accountant’s 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 can’t 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.
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