Setting up a functional chart of accounts for your company in QuickBooks
BusinessTracking sales and business expenses is one of the most fundamental functions in running a successful business. Without knowing how much money your business makes or spends, it’s hard to determine actual performance and profitability. Many entrepreneurs tell me they think they are making money, but when I ask them how much, they are usually stumped.
QuickBooks makes it easy to track sales and expenses, but to do it right, you need to set it up right from the start. The setup starts with the chart of accounts list. This is a list containing all the financial categories in a company’s accounting system. An account is a unique category that represents a specific type of financial transaction. This list is used to organize a company’s finances, prepare financial reports, and record various transactions such as expenses, sales, investments, purchase of assets, loans, etc.
The most important point about designing an effective chart of accounts is to start with the end in mind. In other words, you must first identify what information is relevant to your decision-making process, and then determine how detailed you want your chart of accounts to be. For example, if you run a trucking company, it may be important to know how much you spend on gas, parking, and tolls. Since these expenses can represent a substantial part of your total financial output, many trucking companies will specifically track these expenses on an individual basis. However, if you have an interior design company, the individual breakdown of these car/truck expenses may not be relevant or meaningful. Designers often record all auto-related expenses in one general category called “Auto Expenses.” For an interior design company, the level of detail of expenses may be more important in a different area, such as: client purchases such as art, furniture, fabrics, etc. Or in the area of job-related costs, such as: blueprint reproduction, travel, or subcontractor fees. Therefore, identifying the level of detail you need is the most important step in designing a well-functioning chart of accounts.
QuickBooks allows you to group and organize expenses in a standard chart of accounts template using a master category and numerous subaccounts. For example: Most companies pay several types of insurance expenses. QuickBooks allows you to create a master category called Insurance with subcategories listing various types such as: Health, Liability, Auto, etc. At the end of the period, you will be able to see not only the total insurance costs, but also the amounts for each individual subcategory. This level of reporting will help you better understand your business and enable you to solve problems faster, strategize more intelligently, and make smarter decisions faster.
Simple step-by-step instructions for setting up your chart of accounts with QuickBooks software
Make sure your QuickBooks software is open.
one. Things Lists in the top menu bar and then click Chart of Accounts
2. Click the Account button at the bottom left and choose New. This command is used to create a new account.
3. When the New Account window opens, identify what type of category the account belongs to. QuickBooks will use this information for informational purposes.
Four. Click Continue
5. In the Name field, type the name you’re giving the account. For example: Insurance, Legal Expenses, Accounting Fees, etc. Be brief and do not use supplier or customer names such as: Jon’s Automotive. The category name is a general description.
6. If you are adding a subaccount to a parent category, click the Subaccount checkbox. If you have created an account named Utilities, you can now create subaccounts such as: Electricity, Gas, Water, Recycling, etc.
7. In the Description box, provide a brief explanation of the purpose of this account.
8. Proceed to enter any relevant information about your bank in the other fields
9. If you know which tax line the new account belongs to, you can select it from the Tax line dropdown menu. Most people leave it blank and you can too. Unless you plan to import financial data from QuickBooks into Intuit-compatible tax preparation software, you don’t need to map tax lines for your new accounts.