If you’re new to QuickBooks or looking to enhance your understanding of this crucial feature, you’re at the right place. In this article, we will cover everything you need to know about the Chart of Accounts and how it empowers you to effectively manage your financial data. Read on to know more about the power of the Chart of Accounts in QuickBooks.

Chart Of Accounts: What Is It?

The chart of accounts, also known as COA, comprises a list of account numbers and names that are pertinent to your company. Typically, it consists of four main categories, namely:

• Asset accounts
• Liability accounts
• Income accounts
• Expense accounts

In accounting software, a general ledger is employed, wherein your asset accounts (what you own) are balanced with your liability accounts (what you owe). While this concept is valuable in theory, its practical implementation poses challenges. Due to the discrepancy between current assets and current liabilities, accountants often utilize other account types to ensure the accuracy of the general ledger.

To gain a better understanding of the balance sheet and other relevant financial statements, it is essential to grasp the components that constitute a chart of accounts. Organizing your company’s chart in a systematic manner can facilitate easier access to financial information.

Within each category, specific accounts are distinguished by line items. Each line item represents an account within its respective category. Additionally, some companies may include equity accounts in their chart. An equity account represents the residual value remaining after accounting for all operating expenses and revenue accounts.

Overview Of The Primary Types Of Accounts

The primary types of accounts encompass asset, liability, income, and expense accounts. Below are further details regarding each account type.

Asset Accounts

Your asset accounts may consist of:

• Items of value that you possess, such as:
  • Properties
  • Land
  • Equipment
  • Vehicles
  • Valuables
  • Inventory

• Liquid assets, including:
  • Checking accounts
  • Other bank accounts

• Additional asset accounts encompass items like:
  • Accounts receivable
  • Notes receivable

The COA simplifies the management of various asset accounts by organizing them into line items, enabling easy monitoring of multiple components. Asset accounts can be intricate since they not only record the initial cost of each asset but also involve processes like depreciation.

Liability Accounts

Your liability accounts encompass various items, such as:

• Current Or Short-Term Liabilities:
  • Accounts payable or outstanding bills
  • Payroll taxes
  • Income taxes payable
  • Bank loans
  • Credit card balances

• Non-Current Or Long-Term Liabilities:
  • Mortgages
  • Deferred tax liabilities
  • Personal loans

Current liabilities refer to payments that are due within the current year, while non-current or long-term liabilities are payments due more than a year from the date of the financial report.

When adding a loan to your company’s chart, it is important to follow these steps:

• Include only the principal amount of the loan. Exclude any accrued interest.
• Record each monthly payment in your accounting system.
• Split the payment into two components: one reducing the outstanding balance and the other representing the interest paid, which should be allocated to an expense account.

Income Accounts

The income category is often underutilized by business owners. Here are the most common types of revenue or income accounts:

• Sales income
• Rental income
• Dividend income
• Contra income

Many new owners initially start with broad categories like “sales” and “services.” While some income types are easily generated at a low cost, others require significant effort, time, and expense. It can be beneficial to create separate line items in your chart of accounts for different types of income.

Instead of combining all your income into a single account, consider identifying and categorizing your profitable activities by income type. By analyzing which locations or events generate the highest cash flow, you can make more informed business decisions.

For example, let’s say you have a store that sells various items:

• In your chart of accounts, you can create line items for “income from food sold” and “income from books sold.”
• By comparing the profit levels and cost of goods sold for each category, you can gain a better understanding of your financial health.
• When recording data in your income accounts category, include any sources of money coming into the company, such as interest income.

Expense Accounts

Expense accounts represent the money you have spent. For example, when you pay rent, the funds are transferred from your cash account to the rent expense account. Expense accounts enable you to monitor the money that has been depleted.

Here are additional examples of expense accounts that your business may utilize:

• Cost of sales
• Advertising expense
• Interest expense
• Depreciation expense
• Salaries or wages

It is advisable to divide expenses into separate accounts. For instance, if you frequently ship products, it would be beneficial to track costs from different shipping carriers individually. Within each line account, you can create sub-categories to categorize the various expenses associated with each carrier.

Setting Up The Chart Of Accounts

The process of establishing your chart of accounts is straightforward. Initially, you will need to create a blank chart and allocate the columns. Typically, the chart of accounts is divided into the following three columns:

• Create Names For Your Business Accounts

The account name refers to the designated title of the business account being reported, such as bank fees, cash, taxes, and so on.

• Allocate Account Numbers To Your Business Accounts

Account numbers are assigned to each account name. The following number sequences are commonly used for each account category:

• Assets: 1,000 to 1,999
• Liabilities: 2,000 to 2,999
• Income: 4,000 to 4,999
• Operating expenses: 6,000 to 7,999

• Categorize Account Names Under One Of The Four Account Types

Every account name should be assigned an account type or general ledger category. Choose from the four primary account types: asset, liability, income, and expense.

Here is an example of how your chart will appear once you have included all the necessary components. Once your chart is set up, you can proceed to add specific account names and associate them with their respective account categories.

Accounts Automatically Set Up By QuickBooks

Standard accounts are provided to all users, with additional accounts specific to your industry being added by QuickBooks software. If you cannot find a required account, you have the option to manually add it. Furthermore, you can edit, delete, or hide existing accounts according to your needs.

Tips For Maintaining An Organized Chart Of Accounts

Now that you have set up your chart of accounts, it is essential to keep it organized as you continue to add or modify accounts. The following tips will help you establish a successful chart of accounts:

• Use Clear And Concise Account Names

When initially creating your line items, opt for simplicity. Ensure that your account names are meaningful to both you and your accountant. Use straightforward titles like “bank fees” or “bottling equipment.”

• Utilize Sub-Accounts

Over time, you may find the need to create new line items for each transaction. However, doing so could clutter your company’s chart and make it difficult to navigate. Instead, take advantage of sub-accounts within your accounting software.

For example, suppose you need to create a new account for “PayPal fees.” Rather than adding a new line to your chart of accounts, create a sub-account under “bank fees.” Similarly, if you pay rent for a building or equipment, you can set up a “rent expense” account with sub-accounts for “building rent” and “equipment rent.”

• Incorporate Financial Statements

Include an account statement column in your COA to indicate which financial statement each account will be used for—cash flow, balance sheet, or income statement. For instance, balance sheets typically include asset and liability accounts, while income statements encompass expense accounts.

• Monitor Account Activity

Your chart of accounts is a dynamic document for your business, and as such, accounts will need to be added or removed over time. The general rule for adding or removing accounts is to add accounts as they arise, but wait until the end of the year or quarter to remove any outdated accounts.

Step By Step Guide To Modify An Account From The Chart of Accounts List?

Modifying an account in the COA involves the following steps:

• Selecting The Account: 

The first step is to choose the account that needs to be modified. In QuickBooks, you have the flexibility to modify accounts at any time. From the chart of accounts, scroll down to locate the desired account, click on the drop-down arrow next to “Run Report,” and select the “Edit” option.

• Making Changes To The Account: 

You will be directed to a window where you can modify the Account Name and Account Description fields. It’s important to note that if you have already recorded transactions using the account, avoid changing the category type as it can have significant impacts on your financial statements.

• Save And Close: 

Before exiting the account, remember to save the changes to ensure they are applied. Neglecting to save the modifications will result in the loss of your work.

By following these steps, you can successfully modify an account in the chart of accounts while maintaining the integrity of your financial data.

How To Make An Account Active Or Inactive?

To Deactivate An Account

To maintain a neat and organized bookkeeping system, you have the option to make an account inactive in QuickBooks. By doing so, the account information and transactions are preserved for your records, while keeping it hidden from the active account list.

Before making an account inactive, it’s important to disconnect it if it is linked to a bank. Once disconnected, you can proceed to make the account inactive by selecting “Make Inactive” from the Action dropdown menu. This ensures that the account remains hidden.

If there is a balance remaining in the inactive account, QuickBooks Online will generate a journal entry to transfer the balance to another account. Rest assured, your transactions associated with the account will still be accessible and won’t disappear.

To make an account inactive, follow these steps:

• Access the Chart of Accounts screen.
• Locate the account you want to make inactive.
• Click the drop-down arrow next to “Run report” for that account.
• From the drop-down list, select “Make inactive.”

If you need to view your inactive accounts again, you can adjust the settings in the chart of accounts. Simply click on the gear icon above the table and select the option to “Include Inactive” in the Other category. This will allow you to see the inactive accounts within your chart.

To Activate An Account

If you wish to make an account active again, you have the option to do so. However, please note that the journal entry created when the account was made inactive will remain unchanged. To reactivate the account, simply click on “Make Active” in the Action column. This will restore the account to its active status.

How To Access QuickBooks Chart Of Accounts?

On QuickBooks Desktop:

To access the Chart of Accounts, you can begin by selecting it from either the Company menu or the Accountant menu. Simply navigate to either of these menus and choose the option for Lists or Accountant to access the Chart of Accounts.

On QuickBooks Online:

To access the Chart of Accounts in QuickBooks Online, click on the Settings icon and then select Chart of Accounts from the available options.

Steps To View And Print Your Chart Of Accounts

To view and print your Chart of Accounts in QuickBooks, follow these steps:

• Access the chart of accounts screen.
• On the top right side of the screen, click the “Run Report” button.
• After clicking “Run Report,” a copy of your chart of accounts will be displayed.
• To save or print your chart of accounts, you have a few options:
  • Export to Excel: If you prefer to have your chart of accounts in an Excel file, you can export it by selecting the appropriate option.
  • Print: Click the print option to generate a physical copy of your chart of accounts.
  • Email: If you need to share the chart of accounts electronically, you can choose the email option to send it directly.

[Related: How To Print Checks Online In QuickBooks]

You Are All Set!

In conclusion, we explored what a Chart of Accounts is and its importance in organizing and categorizing financial transactions. By leveraging the power of the Chart of Accounts in QuickBooks, you can streamline your financial management processes, generate accurate reports, and make informed business decisions. With this knowledge, you are well-equipped to effectively manage your financial data in QuickBooks and drive the success of your business.