This source provides a detailed guide to understanding and customizing the Chart of Accounts within QuickBooks Online. It emphasizes the importance of the Chart of Accounts as the accounting system’s core, where transactions are categorized for financial reports. The guide explains how to access, sort, and modify the Chart of Accounts to fit specific business needs, including importing custom charts and creating new accounts. It also addresses common challenges such as managing beginning balances, dealing with uncategorized transactions, and merging redundant accounts, offering solutions for cleaning up and organizing the Chart of Accounts for effective financial reporting. Finally, it walks the user through adding or deactivating accounts and turning account numbers on and off.

QuickBooks Online: Chart of Accounts Mastery

Quiz:

1. What is the chart of accounts and why is it important? The chart of accounts is a list of categories used to organize all transactions in QuickBooks Online. It is the heart of the accounting system, providing the framework for categorizing income and expenses and creating financial reports.
2. How do you access the chart of accounts in QuickBooks Online? To access the chart of accounts, click on the gear menu on the top right of the screen, then click on “Chart of Accounts.”
3. What are the two principal financial statements that utilize the chart of accounts? The two principal financial statements that utilize the chart of accounts are the Balance Sheet and the Profit & Loss (Income Statement).
4. Explain the difference between balance sheet accounts and profit and loss accounts. Balance sheet accounts (assets, liabilities, and equity) have a running balance and reflect a company’s financial position at a specific point in time. Profit and loss accounts (income, cost of goods sold, expenses) track financial performance over a period of time.
5. What is “opening balance equity” and how is it affected when you enter beginning balances for asset and liability accounts? Opening balance equity tracks the accumulated value of a business before accounting in QuickBooks. Adding an asset increases opening balance equity, while adding a liability decreases it.
6. Why is it important to reconcile credit card transactions in QuickBooks Online? Reconciling credit card transactions ensures that the beginning balance is accurate and allows users to catch up on any transactions from the previous year, ensuring accurate financial reporting.
7. How do you create sub-accounts, and why might you use them? To create a sub-account, when creating a new account, select the “Is sub-account” option and choose the parent account. Sub-accounts are used to further categorize and organize accounts, providing more detailed financial information.
8. How do products and services connect to the chart of accounts? Products and services tie, or map, to accounts in the chart of accounts. When creating transactions with those items, QuickBooks knows where to categorize them.
9. What is the purpose of the “uncategorized expense” account, and why can’t it be deleted? The “uncategorized expense” account serves as a default category for transactions that QuickBooks cannot automatically classify. This account cannot be deleted because QuickBooks uses it to fulfill a specific mechanic.
10. How do account numbers affect the order in which accounts are displayed in QuickBooks Online, and how do you enable account numbers? Enabling account numbers in QuickBooks Online orders the chart of accounts numerically instead of alphabetically. To enable account numbers, go to “Account and Settings,” then “Advanced,” and turn on “Enable account numbers.”

Essay Questions:

1. Discuss the importance of a well-organized chart of accounts in QuickBooks Online for effective financial management and decision-making. Provide specific examples of how different account classifications (assets, liabilities, equity, income, expenses) contribute to a comprehensive understanding of a business’s financial health.
2. Explain the process of setting up a chart of accounts for a new business in QuickBooks Online. What factors should be considered when creating new accounts and assigning account types and detail types?
3. Describe the best practices for maintaining and updating a chart of accounts over time. How should businesses handle account reconciliations, and what steps should be taken to ensure data accuracy and consistency?
4. Compare and contrast the balance sheet and profit and loss statement, emphasizing the role of the chart of accounts in generating these financial reports. How do different account categories (e.g., assets, liabilities, income, expenses) contribute to the information presented in each statement?
5. Analyze the impact of chart of account design on financial reporting and compliance. How can a well-structured chart of accounts facilitate the preparation of accurate tax returns and other regulatory filings?

Glossary of Key Terms:

• Account Type: A classification of accounts in the chart of accounts (e.g., Asset, Liability, Equity, Income, Expense).
• Balance Sheet: A financial statement that reports a company’s assets, liabilities, and equity at a specific point in time.
• Chart of Accounts: A list of all the accounts used to record transactions in the general ledger of a business.
• Cost of Goods Sold (COGS): Direct costs attributable to the production of the goods sold by a company.
• Credit Card: A liability account used to track balances owed on credit cards.
• Detail Type: A further categorization of accounts within an account type, providing more specific classifications.
• Equity: The owner’s stake in the business, representing the residual value of assets after deducting liabilities.
• Expenses: Costs incurred in the normal course of business to generate revenue.
• Fixed Assets: Long-term tangible assets used in a company’s operations (e.g., vehicles, equipment).
• Income: Revenue generated from the sale of goods or services.
• Liabilities: Obligations or debts owed by a business to external parties.
• Long-Term Liabilities: Obligations due more than one year in the future.
• Opening Balance Equity: An equity account used to record the initial value of a business when setting up QuickBooks Online.
• Profit and Loss (P&L) Statement: A financial statement that reports a company’s revenues, expenses, and net income over a period of time. Also known as an Income Statement.
• Retained Earnings: The accumulated profits of a company that have been retained for reinvestment or other purposes.
• Sub-Account: An account that is a child of another account. Used to provide more detailed information about transactions recorded to the parent account.
• Transaction: Any activity that affects the financial position of a business (e.g., sales, purchases, payments).
• Uncategorized Expense: A default expense account used for transactions that cannot be automatically categorized.

QuickBooks Online: Mastering Your Chart of Accounts

Okay, here’s a detailed briefing document summarizing the key themes and ideas from the provided QuickBooks Online Chart of Accounts source.

Briefing Document: QuickBooks Online – Mastering Your Chart of Accounts

I. Overview:

This source is a video transcript focusing on the Chart of Accounts within QuickBooks Online (QBO). The speaker emphasizes that understanding and properly utilizing the Chart of Accounts is crucial for effective accounting within QBO. It is described as “the heart of the accounting system.” The tutorial covers accessing the Chart of Accounts, understanding its structure, creating new accounts, importing a chart of accounts, and linking accounts to products and services. It also touches on how the chart of accounts impacts financial reports like the Profit & Loss statement and the Balance Sheet.

II. Key Themes and Ideas:

• Importance of the Chart of Accounts: The video stresses the critical role of the Chart of Accounts in organizing financial data within QuickBooks Online. The speaker states, “the most common mistake that QuickBooks users make is they don’t get very much acquainted with the chart of accounts and then they really don’t know how to categorize transactions.” Proper categorization ensures accurate financial reporting.
• Structure and Organization:The Chart of Accounts is a list of categories used to organize all transactions.
• It can be sorted by name, account type, detail type, or balance.
• Sorting by account type is logical, as it aligns with the order of accounts on financial statements (Balance Sheet and Profit & Loss).
• The Balance Sheet accounts (assets, liabilities, and equity) display a running balance in the “QuickBooks Balance” column.
• Profit & Loss accounts (income, cost of goods sold, expenses) do not show a running balance.
• Accessing and Navigating the Chart of Accounts: The speaker explains how to access the Chart of Accounts by clicking on the gear menu and then “Chart of Accounts.” Once inside, users can sort the accounts by various criteria.
• Account Types and Financial Statements:Balance Sheet Accounts: Bank accounts, accounts receivable, assets, liabilities, and equity.
• “All those accounts from Equity to the top, they belong to your balance sheet. Now the other way to quickly tell that the account belongs to the balance sheet is there’s going to be a column called quick QuickBooks balance and there’s always going to be a running balance in the QuickBooks balance column”
• Profit & Loss Accounts: Income, Cost of Goods Sold, Expenses, Other Income, and Other Expenses.
• “everything from income cost to good so expenses other income other expenses those are going to belong in your profit and loss account”
• Creating New Accounts:The video details the steps to create new accounts, emphasizing the importance of selecting the correct account type and detail type.
• A key aspect is setting the “When do you want to start tracking your finances in QuickBooks from this account?” date. This determines when the opening balance will be booked (the prior day).
• Examples are provided for creating bank accounts, fixed assets (vehicles), loans, and credit card accounts.
• Opening Balances:Entering opening balances is essential when starting to use QuickBooks Online.
• For asset accounts, the opening balance increases the “Opening Balance Equity” account.
• For liability accounts, the opening balance decreases the “Opening Balance Equity” account.
• The Opening Balance Equity reflects the net worth of the business at the start of tracking finances in QBO.
• Subaccounts: Subaccounts allow for more detailed tracking within a general account category. The example used is creating individual vehicle listings as subaccounts under a main “Vehicles” fixed asset account.
• Credit Card Account Considerations: The video highlights the nuances of setting up credit card accounts, especially when the statement closing date doesn’t align with the month-end. Two options are presented: enter transactions for the overlapping period or combine balances as of the desired start date. It also covers situations where multiple cards exist under one master account, requiring the creation of sub-accounts for each card user.
• Importing Chart of Accounts: Users can import a Chart of Accounts from an Excel or CSV file. This is especially helpful for accountants or users with pre-existing Chart of Account templates.
• The speaker says that, “the way I import the chart of accounts into QuickBooks is I export this into Excel and then I go uh in here into… the chart of accounts click on the drop down menu and then click on import”
• Linking Products and Services to Accounts: The video explains how to link products and services to specific income or expense accounts. This connection is crucial for automatically categorizing transactions created from invoices or sales receipts. The speaker shows how to navigate to the product and service list, create a service and assign its income account.
• Cleaning Up and Customizing the Chart of Accounts:Inactive (deleted) accounts can be hidden or grouped under a general category (e.g., “Old/Deleted Accounts”) to declutter financial reports.
• Redundant accounts can be merged to simplify the Chart of Accounts.
• Account numbers can be enabled to provide a more organized view (accountants prefer this).
• The ultimate goal is to have as few accounts as possible that provide the most meaningful information for your business needs.
• Managing Profit and Loss Accounts:The video shows how to create custom income and expense accounts.
• It also shows how to make default accounts inactive if they are not needed
• “uncategorized expense is one that you cannot change QuickBooks gives you that you have to leave that in there because when you connect your Banks and QuickBooks just so know where to categorize stuff that’s where it’s going to put it it’s going to put it under uncategorized expense”
• Transition to Retained Earnings
• The speaker recommends that you perform a journal entry to move the opening balance equity to retained earnings.
• “in the accounting World opening balance Equity is actually referred to as retain earnings retain earnings so what I’m going to do is I’m going to take this number…I’m going to do a journal entry to move it out of op balance equity and into rain earnings”
• Report CustomizationThe speaker shows how you can make the Profit and Loss report show all rows and active columns to see all of the accounts.

III. Important Considerations:

• QuickBooks Online Version Differences: The video notes that the appearance of certain screens, particularly the “New Account” pop-up, may vary depending on the QBO version. Functionality, however, remains consistent.
• Accountant Assistance: For complex tasks like entering accumulated depreciation for fixed assets or handling journal entries, the video suggests seeking help from an accountant.
• Dynamic Nature of QuickBooks: The video acknowledges that QuickBooks is constantly evolving, particularly with changes to report interfaces.

IV. Target Audience:

This video is primarily aimed at beginners and intermediate QuickBooks Online users who want to gain a deeper understanding of the Chart of Accounts and its impact on their financial reporting. It is also useful for accountants who may want to import their own charts of accounts.

QuickBooks Online: Mastering Your Chart of Accounts

FAQ on Mastering Your QuickBooks Online Chart of Accounts

1. What is the Chart of Accounts in QuickBooks Online and why is it important?

The Chart of Accounts (COA) is the backbone of your accounting system in QuickBooks Online. It’s a comprehensive list of categories used to organize all your financial transactions. By categorizing income and expenses appropriately, you can generate accurate and meaningful financial reports, such as the Profit and Loss statement and the Balance Sheet. Familiarity with the COA is crucial for proper categorization of transactions as they come in from your bank and credit card feeds, leading to better financial insights.

2. How do I access and navigate the Chart of Accounts in QuickBooks Online?

To access the Chart of Accounts, click on the gear icon in the top right corner of QuickBooks Online and select “Chart of Accounts.” You can sort the list by name, account type, detail type, or balance by clicking on the respective column headers. Sorting by account type is generally recommended as it displays accounts in the order they appear on financial statements (Balance Sheet accounts first, followed by Profit & Loss accounts).

3. What are the main sections of the Chart of Accounts and what type of accounts do they hold?

The Chart of Accounts is primarily divided into two main sections, corresponding to the two primary financial statements:

• Balance Sheet Accounts: These accounts show the financial position of your business at a specific point in time. They include:
• Assets (e.g., Bank accounts, Accounts Receivable, Fixed Assets)
• Liabilities (e.g., Accounts Payable, Credit Cards, Loans)
• Equity (e.g., Owner’s Equity, Retained Earnings)
• Profit & Loss (Income Statement) Accounts: These accounts track your business’s financial performance over a period of time. They include:
• Income (e.g., Sales, Service Income)
• Cost of Goods Sold (direct costs associated with producing goods or services)
• Expenses (e.g., Rent, Utilities, Salaries)
• Other Income & Expenses (e.g., Interest Income, Loss on Sale of Assets)

4. How do I add a new account to my Chart of Accounts and what are the key considerations when doing so?

To add a new account, click the “New” button in the upper right corner of the Chart of Accounts. A window or drawer will appear (the interface may differ slightly depending on your QuickBooks Online version). Choose the appropriate account type (e.g., Bank, Fixed Asset, Income, Expense), then select a detailed type that best describes the account’s nature. Give the account a clear and descriptive name (including the last four digits) to identify the account easily. Finally, if applicable, enter a starting/opening balance and the date for tracking transactions from the account.

5. How do I enter opening balances for existing accounts and why is it important to do this correctly?

When setting up QuickBooks Online, it’s crucial to enter accurate opening balances for all existing accounts. This involves selecting the date that your tracking finances will begin with, such as Jan 1st 2024, and entering balances as of the last date (December 31st, 2023 in this example). For bank accounts, use the ending balance from the December bank statement. For fixed assets, it could be original purchase price minus depreciation. For loans, use the actual outstanding loan balance. Credit cards can be tricky as the closing date may not be the end of the month, so use the ending balance from the closest statement and account for any in-between transactions to align with your start date. Inaccurate opening balances can distort your financial reports from the outset.

6. How do Sub-Accounts work in QuickBooks and how should I name them?

Sub-accounts allow you to create a hierarchical structure within your Chart of Accounts for more detailed tracking. For instance, you might have a main “Vehicle” fixed asset account and then sub-accounts for individual vehicles (“Ford F-150 White”). Another example is having a Chase rewards plus INC credit card main account, with sub accounts that name all the various users. To create a sub-account, check the “Is sub-account” box when creating or editing an account and select the parent account from the drop-down menu. You need to be very careful to select an account from the same category. Sub-accounts provide greater granularity while keeping your main financial statements organized.

7. How do Products and Services relate to the Chart of Accounts and how do I connect them?

Products and Services are the individual items you sell or buy in your business. Each product or service is linked to a specific income or expense account in your Chart of Accounts. This connection determines how sales and purchases are categorized on your financial statements.

To link a product or service to an account, go to the “Products and Services” list (accessible via the gear icon) and edit or create an item. In the item details, select the appropriate “Income account” or “Expense account” from the drop-down menu. This mapping is essential for accurate revenue and expense tracking.

8. How do I customize my Chart of Accounts for better reporting, and what steps should I take when doing it?

Customizing your chart of accounts for better reporting is key.

1. First, consider all the business transactions and think of the best names to give these accounts.
2. Second, import your own list of accounts, using a pre-made template on Excel.
3. Third, customize your income and expense accounts. Do you want to eliminate the default expense accounts that come with QuickBooks Online?
4. When setting up your Chart of Accounts, you may need to merge some accounts that are redundant.
5. Finally, if you are comfortable with account numbers, you can enable it so that the Chart of Accounts can be more clearly viewed.

QuickBooks Online Chart of Accounts: Setup and Management

QuickBooks Online and its chart of accounts are discussed in the source.

Here’s a breakdown:

• Chart of Accounts: The chart of accounts in QuickBooks Online is the core of the accounting system. It’s a list of categories for organizing transactions to be viewed in financial reports like profit and loss statements or balance sheets.
• Accessing the Chart of Accounts: To access it, the gear menu is clicked, followed by ‘chart of accounts’.
• Sorting: The chart of accounts can be sorted by name, account type, detail type, or balance. Sorting by account type displays accounts in the order they appear on financial statements.
• Balance Sheet Accounts: These accounts include bank accounts, accounts receivable, current assets, other assets, fixed assets, liability accounts (accounts payable, credit cards), and equity. Balance sheet accounts have a running balance in the QuickBooks balance column.
• Profit and Loss Accounts: These include income, cost of goods sold, expenses, other income, and other expenses.
• Account Limits: Some QuickBooks versions limit the number of accounts (e.g., Simple Start, Essentials, and Plus versions are limited to 250 accounts).
• Creating a New Account: When creating a new account, the user selects the account type and detail type. They also specify when to start tracking finances in QuickBooks.
• Beginning Balances: When a new asset account is created, the opening balance equity increases. When a liability account is created, the opening balance equity decreases.
• Cash Account: QuickBooks creates a cash account for petty cash, which can be renamed.
• Fixed Assets: When adding a fixed asset like a truck, the original purchase price (minus depreciation) is entered.
• Long-Term Liabilities: Loans with over a year left for repayment are considered long-term liabilities.
• Credit Cards: Credit card accounts can be a bit tricky because their closing dates might not align with month ends. One option is to enter the combined balance as of the statement’s closing date, including any transactions up to the end of the year.
• Sub-accounts: For credit cards with multiple users or extensions, the parent account carries the beginning balance, and sub-accounts are created for each physical card without entering individual beginning balances.
• Balance Sheet Review: After entering all the beginning balances, a balance sheet can be run for the last fiscal year to verify the balances.
• Journal Entry for Retained Earnings: The source notes that opening balance equity is a QuickBooks concept, and in accounting, it’s referred to as retained earnings. A journal entry can be made to move the balance from opening balance equity to retained earnings.
• Importing Chart of Accounts: Users can import their own chart of accounts from Excel.
• Customizing Income Accounts: Users can create their own income categories (e.g., on-site services, remote services) and make existing ones inactive.
• Products and Services: Products and services are linked to specific income accounts.
• Account Numbers: Account numbers can be enabled to order the chart of accounts numerically.
• Merging Accounts: Redundant accounts can be merged.
• Profit and Loss Report Customization: QuickBooks Online allows you to customize your profit and loss report to show accounts even if they don’t have any activity.

QuickBooks Online: Chart of Accounts Management and Customization

The chart of accounts in QuickBooks Online is a vital part of the accounting system. It serves as a list of categories that are used to organize all transactions. These categories are essential for generating financial reports such as profit and loss statements and balance sheets.

Accessing and Sorting To access the chart of accounts, one must click on the gear menu and then select “chart of accounts”. Once accessed, the chart of accounts can be sorted by:

• Name
• Account type
• Detail type
• Balance

The most logical way to sort the chart of accounts is by account type, as this will display the accounts in the order in which they appear on the financial statements.

Types of Accounts The chart of accounts includes both balance sheet and profit and loss accounts.

• Balance Sheet Accounts These accounts comprise assets, liabilities, and equity.
• Assets Bank accounts, accounts receivable, current assets, other assets, and fixed assets.
• Liabilities Accounts payable and credit card accounts.
• Balance sheet accounts will always have a running balance in the “QuickBooks balance” column.
• Profit and Loss Accounts These accounts include income, cost of goods sold, expenses, other income, and other expenses.

Account Limits Different versions of QuickBooks Online have different account limits. For example, Simple Start, Essentials, and Plus versions are limited to 250 accounts.

Creating New Accounts When creating a new account, users must select the account type and detail type. They also need to specify when they want to start tracking finances in QuickBooks. When creating a new asset account, the opening balance equity increases, while creating a liability account decreases the opening balance equity.

Fixed Assets and Long-Term Liabilities When adding fixed assets, such as a truck, it’s important to enter the original purchase price minus any depreciation. Long-term liabilities are loans that have more than a year left to pay.

Credit Card Accounts Credit card accounts can be tricky because their closing dates may not align with the end of the month. In such cases, one option is to enter the combined balance as of the statement’s closing date, including all transactions up to the end of the year. For credit cards that have multiple users or extensions, create sub-accounts for each physical card, while the parent account carries the beginning balance.

Balance Sheet Review and Retained Earnings After entering all beginning balances, run a balance sheet for the last fiscal year to verify the balances. The source specifies that in accounting, opening balance equity is referred to as retained earnings, and a journal entry can be created to move the balance from opening balance equity to retained earnings.

Importing and Customizing Users have the option to import a chart of accounts from Excel and customize income accounts by creating their own categories and deactivating the existing ones. Products and services are linked to specific income accounts.

Account Numbers and Merging Accounts Account numbers can be enabled to numerically order the chart of accounts. Additionally, redundant accounts can be merged.

Profit and Loss Report Customization QuickBooks Online enables customization of the profit and loss report to show accounts, even when there is no activity.

QuickBooks Online: Understanding Account Types and Chart of Accounts

The sources discuss ‘account type’ in the context of QuickBooks Online and its chart of accounts. The chart of accounts is a list of categories that are used to organize transactions and is essential for generating financial reports.

Here’s a breakdown of account types based on the sources:

• Sorting by Account Type: The most logical way to sort the chart of accounts is by account type, as this displays the accounts in the order in which they appear on the financial statements.
• Balance Sheet Accounts: These accounts comprise assets, liabilities, and equity.
• Assets: Bank accounts, accounts receivable, current assets, other assets, and fixed assets.
• Liabilities: Accounts payable and credit card accounts.
• Balance sheet accounts will always have a running balance in the “QuickBooks balance” column.
• Profit and Loss Accounts: These accounts include income, cost of goods sold, expenses, other income, and other expenses.
• Creating a New Account: When creating a new account, users must select the account type and detail type.
• When creating a new asset account, the opening balance equity increases, while creating a liability account decreases the opening balance equity.
• Fixed Assets: When adding fixed assets, such as a truck, it’s important to enter the original purchase price minus any depreciation.
• Long-Term Liabilities: Loans that have over a year left to pay are considered long-term liabilities.
• Customizing Income Accounts: Users can create their own income categories and deactivate the existing ones. Products and services are linked to specific income accounts.
• The source notes that income accounts typically start with the number 4, cost of goods sold accounts start with 5, and expense accounts start with 6 or 7. Asset accounts start with 1, liabilities with 2, and equity accounts with 3.

QuickBooks Online: Understanding the Balance Sheet and Chart of Accounts

The balance sheet is a key financial statement in QuickBooks Online, and the sources provide extensive information on how it relates to the chart of accounts. The balance sheet contains asset, liability, and equity accounts.

Here’s a detailed breakdown:

• Balance Sheet Accounts: The principal financial statement is called the balance sheet.
• Types of Balance Sheet Accounts:
• Assets: These include bank accounts, accounts receivable, current assets, other assets, and fixed assets.
• Liabilities: These include accounts payable, credit card accounts, other current liabilities, and long-term liabilities.
• Equity: This is the equity section.
• Identifying Balance Sheet Accounts: A quick way to identify a balance sheet account is the presence of a “QuickBooks balance” column, which displays a running balance. The last account with a running balance is typically an equity account.
• Setting Up Initial Balances:
• A typical first step is to create accounts with a running balance.
• When a new asset account is created, the opening balance equity increases.
• When a liability account is created, the opening balance equity decreases.
• Fixed Assets: When adding a fixed asset like a truck, the original purchase price (minus depreciation) is entered.
• Long-Term Liabilities: Loans with over a year left for repayment are considered long-term liabilities.
• Credit Cards: Credit card accounts can be a bit tricky because their closing dates might not align with month ends. One option is to enter the combined balance as of the statement’s closing date, including any transactions up to the end of the year.
• Sub-accounts: For credit cards with multiple users or extensions, the parent account carries the beginning balance, and sub-accounts are created for each physical card without entering individual beginning balances.
• Reviewing the Balance Sheet: After entering all the beginning balances, a balance sheet can be run for the last fiscal year to verify the balances.
• Opening Balance Equity vs. Retained Earnings:
• The source specifies that in accounting, opening balance equity is referred to as retained earnings, and a journal entry can be created to move the balance from opening balance equity to retained earnings.
• The source notes that journal entries can be tricky and it may be best to consult with an accountant.
• Account Numbers:
• Account numbers can be enabled to order the chart of accounts numerically.
• Asset accounts typically start with the number 1, liabilities with 2, and equity accounts with 3.

QuickBooks Online: Profit & Loss Statement Insights

The Profit & Loss (P&L) statement is a crucial financial report in QuickBooks Online, and the sources offer detailed insights into its composition and customization. The P&L statement, also called an income statement, relies on information from the chart of accounts.

Here’s a comprehensive overview:

• Profit and Loss Accounts: These include income, cost of goods sold, expenses, other income, and other expenses.
• Location in Chart of Accounts: When sorting the chart of accounts by account type, the P&L accounts are found under the equity section, beginning with income. They appear after the balance sheet accounts.
• Customizing Income Accounts:
• Users can create their own income categories (e.g., on-site services, remote services).
• Existing income accounts can be made inactive.
• The source mentions that it is not possible to delete certain accounts, such as ‘billable expense income’ and ‘uncategorized income’.
• Products and Services: These are linked to specific income accounts, ensuring proper categorization of income on the P&L statement.
• Showing All Accounts: QuickBooks Online allows you to customize your profit and loss report to show accounts even if they don’t have any activity.
• Deleting and Nesting Accounts: The source explains how to nest old or deleted accounts under a general category to clean up the P&L.
• Account Numbers:
• Account numbers can be enabled to order the chart of accounts numerically.
• The source notes that income accounts typically start with the number 4, cost of goods sold accounts start with 5, and expense accounts start with 6 or 7.
• Merging Accounts: Redundant accounts can be merged. For example, Heating and Cooling can be merged with Electricity.
• Miscellaneous Accounts: The source suggests having miscellaneous accounts under general categories such as ‘miscellaneous travel’.
• Importance of Organization: The purpose of working on the chart of accounts is to organize categories of income and expenses in a way that is useful and meaningful for financial reports. The goal is to have as few accounts as possible while still providing rich information.
• Default Chart of Accounts: The source notes that the default chart of accounts in QuickBooks may vary, but gives the user control to customize it.
• Utilities Example: The source shows an example of renaming ‘Water and Sewer’ to ‘Water Sewer and Disposal fees’.
• Example of Travel Expenses: The source explains how to set up a ‘miscellaneous travel’ account.

The Original Text

in this video we’re going to talk about the chart of accounts in QuickBooks Online the chart of accounts is the heart of the accounting system the most common mistake that QuickBooks users make is they don’t get very much acquainted with the chart of accounts and then they really don’t know how to categorize transactions when the income and the expenses come in from the bank the chart of accounts is the list of categories that you use to organize all your transactions into so essentially you can see them in financial reports such as your profit and loss or the balance sheet to access your chart of accounts you click on the gear menu on the top right and then you click on chart of accounts now once you look at the chart of accounts you can actually sort these by name by clicking on the header of the grid by account type by detail type by balance and so forth the most logical way to sort your chart of accounts is going to be by account type because when you sort by account type what you’re going to see is all your accounts based based on the order in which they fall into in your financial statements for example the principal financial statement is called the balance sheet the very first account you see on the top is going to be your bank account naturally that is going to be the very first account or group of accounts that you see they’re going to be under bank then you’re going to see things like accounts receivable current assets other assets fixed assets and then you’re going to go see your liability accounts they still on the balance sheet you’re going to see accounts like accounts pay pble credit card accounts which we haven’t created one yet other current liabilities long-term liabilities and Equity so all of those that I mentioned just now from bank which is an asset all the way down to equity which is in the equity section once you see this break between equity and income all those accounts from Equity to the top they belong to your balance sheet now the other way to quickly tell that the account belongs to the balance sheet is there’s going to be a column called quick QuickBooks balance and there’s always going to be a running balance in the QuickBooks balance column and the very last account when they’re sorted by account type notice that the very last account that has a running balance which happens to be zero it’s an equity account and then you’re going to see income right under it so all the accounts under Equity starting from income and then going to cost to good sold which are your direct expenses down to expenses which are your operating expenses and then all the way in the bottom to your what they call the extraordinary accounts let me go to the next page which is going to be your other income and other expenses everything from income cost to good so expenses other income other expenses those are going to belong in your profit and loss account okay so that gives you an idea more or less you know where these two type of accounts fit now uh the the chart of accounts can actually have a limitation of so many accounts you can fit per page right now it’s set up for 175 but you can go all the way to 300 per page some people could have more than 300 accounts that is possible most versions of QuickBooks Simple Start Essentials and plus are limited to 250 accounts anyway so only the advanced version of QuickBooks Online can have more than 250 this particular chart of accounts that you’re seeing has 135 accounts so I’m actually using I’m not using I’m not using the advanc Edition so I can add a whole bunch of accounts get all the way to 250 now for the purposes of this video and this is the point I want to make is that if I go to reports and I go into profit and loss for example and I change the date to all dates and click on run report notice that none of the accounts show because there’s absolutely zero activity on this account for this example I created a brand new account from scratch so we can kind of see what happens as we work the chart of accounts I’m going to go to reports and do the same thing with the balance sheet and I could do uh all dates or pick a particular date range let’s do all dates for example click on run report and then we get the exact same behavior so again just proving the point this is a blank account brand new account let me go back into the chart of accounts and let’s talk about what are the typical first steps that we do now now that we understand exactly what it is what are the typical first steps that we do is we’re going to create all the accounts that we know from fact have a running balance so let’s start with that I’m going to click on the new button on the top right click on new now I do want to pause for a second this little square popup that you see on your screen it’s one of the versions of QuickBooks Online show this depending on what version of QuickBooks Online you have and you really can’t tell by looking at it this is just based on how QuickBooks creates the accounts you may not see this Square little popup you might see a drawer that comes from the right hand side all all the functionality is identical all the buttons you can press are identical they’re just organized differently and I’m I’m a little bit later on I’m going to switch to a different company file that actually has the drawer so you can see the two differences so I do want to show you with both so don’t freak out if your screen doesn’t look like this it’s fine uh we’re actually going to cover what the other screen looks like just kind of follow along uh the concepts themselves cuz those are going to be really important then I’m going to choose the type of account I’m going to create let’s say I’m going to enter all my bank accounts that already have a running balance uh from the first date that I’m going to decide to enter transactions inside QuickBooks so for examples of this video Let’s just assume that I created a brand new account and I’m going to start January 1st 2024 that means that I need to enter all the balances that come all the way up to December 31st 2023 because I want to start January 1st 2024 and this is the time that I want to go back into QuickBooks and enter transactions so I can have a clean tax year for example so I’m going to enter all my bank accounts so I’m going to select Bank as the account type under the detail type I’m going to pick the best possible option here so let’s say it’s a checking account and then under name I’m going to put the name of the bank so let’s say this is in Chase and then I’m going to put whether it’s checking or savings as the name and and this is the part where you can actually put whatever you want really but this is how I like to do it and then put the last four digits of the account typically the easiest way to identify now some people create an operating account a payroll account a tax savings account okay that’s fine you can do that and you can add that naming to your naming convention if you want to the description is optional you actually do not need to create that and then sub we’ll discuss that later on as we start creating more accounts now down here at the bottom it says when do you want to start tracking your finances in QuickBooks from this account and as I mentioned earlier we’re going to start January 1st 2024 so we’re going to click on other and then we’re going to specifically select January 1st 2024 essentially letting them know that if I do enter an opening balance that opening balance is supposed to be booked 1231 2023 so then I’m going to go get my actual physical bank statement for December for that bank account and I’m going to read the ending balance from the bank statement and I’m going to enter it in there so let’s say that’s 45,0 89062 so I read that from the bank statement for the ending balance of 1231 2023 and then I click on Save and close you will notice that immediately you’re going to see the account gets created in here the QuickBooks balance is going to be that beginning balance and then I’m going to scroll down so you can see something because there’s going to be a balancing entry under opening under opening balance Equity you’re going to see a balance entry for the same exact dollar amount every time I add an asset like a bank account that opening balance Equity is going to go up every time I add a liability such as a credit card or a loan that opening balance is going to go down essentially keeping track of what’s the accumulated value of your business uh before we start doing Accounting in QuickBooks okay so we did that bank account let’s do another bank account I’m going to click on new and let’s say I have another bank account but this time around it’s a savings account and it happens to be let’s say in Bank of America so I’ll put boa savings and then the last four digits of the account then I’m going to choose the same thing I’m going to choose the beginning date that I’m going to start entering transactions in this account then I’m going to go read the the ending balance from the statement let’s say it’s 100,000 flat I’ll put that in there and click save and close so now I have my two beginning balance uh balances in there and let’s say that’s it let’s say I don’t have any more bank accounts notice QuickBooks uh created a cash account which is going to be your petty cash account is where you’re going to be holding cash maybe your customers pay you in cash maybe you took out an ATM cash withdrawal you’re keeping cash in there and you might make some expenditures keep track of those receipts and that’s going to be sort of the account that’s not going to be tracked through the bank but you’re going to be tracking manually now you can change the name of that account if you don’t like it to be called Cash you want to call it petty cash for example we click on edit and then we change the name from cash to petty cash and then it’s up to you and and now one thing I want to make uh clear is there are some businesses where they have multiple employees holding petty cash and then what you can do is you can do is let me just edit that and put petty cash you can put petty cash John petty cash Hector petty cash uh Mary or whatever and then you can keep track of everybody’s petty cash uh per se so depending on how you manage cash some businesses will never touch cash so you don’t you not even need that and if you don’t want that account you can just click on the drop- down menu and click on make inactive or delete now one thing is QuickBooks Online does create a chart of accounts for you and um as we mentioned earlier it was 135 accounts you can delete them you don’t have to use them but that’s what QuickBooks suggests that you use so we entered both of our bank accounts let’s now go down here and create let’s say a fix asset so let’s say that I want to put a truck that I have in here now QuickBooks has a general category for vehicle so maybe I want to use that and then make a sub account so that’s the example we’re going to show you so I’m going to click on new on the top right under account type I’m going to go down to fix asset that’s where a truck would go under detail type I’m going to go look for the best possible uh category that matches what I’m trying to do so vehicles and then I’m going to call this by what it is so let’s say this is a Ford F150 I typically like to put the acquisition date on it it just it’s easier for me to do that so I put that in parenthesis so let’s say I bought it um May 19th 2019 or something like that okay so that helps me understand especially if I have multiple F-150s it will help me understand which one specifically it is you can go further and say that this is a 2019 model and then let’s say you have multiple 2019 models you can do white black whatever so you get to you get to pick whatever name makes the most sense for you and you put that in the balance sheet then it says here when do you want to start tracking finances from this account we’re going to do the same thing we’re going to do January 1st and then this gets a little trickier you have to go find your um well at some point when we do the actual loan we’re going to have to go find what the actual loan balance is but this is the fixed asset so this one’s actually not going to be the loan balance this is going to be the original uh purchase price of the vehicle minus depreciation now that gets tricky you might need an accountant to help you with that for the time being just to keep it simple we’re going to put the original purchase price of the vehicle now you can always look in your balance sheet in your tax return return if you had an accountant or CPA do your tax return your balance sheet will probably keep track of all your fixed assets all the depreciations and then maybe have a separate fixed asset schedule that tells you exactly how much um they booked the value of the vehicle and they accumulated depreciation so that could help you figure out what number goes in here for the time being I’m going to keep it simple let’s say I spent 4,608 on this car out the door with taxes and everything and then I’m going to click on Save and close so this is the original value of the vehicle again you might need um an accountant to kind of help you make sure you you enter the the cumulated depreciation and all that stuff now in this particular case I created the vehicle I’m going to go back and edit it and I didn’t make it a sub account of the existing vehicle category I think I want to do that so I’m going to click this little check box that says is sub account click on the drop down and then go look for uh the vehicle category that way it’s all organized sort of in the same grouping then I click on Save and close and then you will notice as I scroll down now I see a category for vehicles and then I see the fort in there if I happen to have another vehicle I can uh create that vehicle by clicking on new doing the exact same process so going down here to fix assets detail type let’s go down to uh Vehicles let’s say this one is a Ford F-150 as well but this is from uh 2021 and then this one happens to be black and let’s say I purchase that on 1231 2020 or something like that and the same thing I’m going to pick the original purchase price of this vehicle I’m going to be consistent with the beginning date of all the transactions that we’re going to be managing and the let’s say the purchase price was 51985 click save and close so now as I go down and scroll down to my vehicles and it looks like I also forgot to put this one as a sub account so let’s go back in that and click on edit so I didn’t do it on purpose that was my mistake but it’s good because you get to see um the actual um the actual process here so I’m going to put it under Vehicles which is a fixed asset you got be very careful because it happens to be a vehicle expense account as well and that’s not where I want to put it um even if I try to put it there and click save and close um it’s not going to let me because I can’t put a sub account of a fixed asset into an expense so it needs to be the exact same category for that to work anyway so let’s put here a vehicle and let’s do the fix assets and then click save and close perfect so now as I scroll down now I see that I have my vehicles category and both of my fixed Assets in there with the right uh labeling with the right $2 amounts and then the sum of the two right under that parent account if I scroll down and I look at my opening balance Equity notice that all the accounts that I put that are assets are increasing my open opening balance Equity account let’s start creating some loans so I’m going to go to new then I’m going to click on the drop down menu and then I’m going to click on long-term liabilities so typically any loans that you have more than a year left to pay it’s going to be a long-term liability and then we can call this a node payable or other long-term liability it doesn’t matter and then we’re going to put here Ford let so here Ford truck loan and if I happen to have two of them I probably want to identify and by the white truck or the black truck or whatever it is so we’ll put here white and then I’m going to come here same thing I’m going to select the beginning of the year which is the date that we decided to start our finances and then I’m going to get this is actually the loan balance not the original purchase price I’m going to get the actual statement from uh Ford Finance or whatever I’m going to get the statement from the bank and that shows the ending balance as of 1231 2023 and let’s say for this one was 23,00 965 I click on Save and close and then I’ll do the same thing for the other one so I’m going to go to new go drop down menu get the other physical statement long-term liability and let’s say this is the Ford uh truck loan black and then other same thing one one 2024 and then this one happens to be let’s say 38,7 seven eight something like that save and close so I enter two loans which are two liabilities as I scroll down scroll all the way down now I see my two long-term liabilities they show up in here now you should notice that my opening balance Equity is going down and this is the exercise you have to do you have to create all your assets all your liabilities and all of these balances essentially are going to give you the opening balance equity which is the net worth of your business at that moment in time where you started tracking your finances in in this case January 1st 2024 okay let’s do one more exercise which is our credit cards so I’m going to go to new then I’m going to get all my credit card statements I’m going to click here credit card and this one’s a little bit tricky because credit cards don’t have clean months like bank accounts or loans a credit card can end in the 15th of the month it can end in the 20th of the month so that gets a little bit tricky so essentially what I want to do is I’m let me start with let’s say my AMX uh platinum or something like that and uh we’ll put the last four digits of the account what I want to do is I want to do the same thing here I want to do 11 11 2024 but because I don’t have I can’t get that information from the statement I have to get the closing uh date as of the last time that the the bank that the um credit card closed let’s say this happens to be December 15th I can put the number there but then when I go reconcile it’s not going to work because I will be missing the transactions from December 15th to the end of the year so for this to actually work you have to put in here combined the balance as of December 15 and all the transactions in between plus and minuses you have to add them together in order to have a correct beginning balance and then you can then start creating your transactions January 1st 2024 and you should have a clean beginning balance that’s one option the other option that we have and this could happen like this is I want to make put here the ending date of the last statement and then essentially you will be also entering some 2023 transactions in QuickBooks in order to catch up and then when you go reconcile let’s say January 15th 2024 you have a full month worth of statements and your QuickBook is going to have some transactions for 2023 so that that’s that’s the part that just gets a little bit tricky so that could be the other option that you have so let’s say this is 12489 60 and again we’re picking the method where we’re taking the actual physical statement let’s say they close on the 15th we’re taking the ending balance on the 14th and then when we go enter transactions we’re going to choose to catch up those uh last transactions of the year and again who cares we got we put some things for 2023 here even though it wasn’t our intention but we were able to do a clean reconciliation now very very important I do have a video that talks about reconciling entirely different process we won’t cover that in here but um keep that in mind because this is like the precursor of doing any sort of bank reconciliations so we’ll do save and close and there there is my um American Express uh credit card now let’s do one more credit card and this is going to be a situation where I have a credit card and then multiple sub accounts under it or multiple physical cards and that’s a really important one because when you connect your Banks your Banks usually download the activities in each of the sub account accounts but then when you reconcile you reconcile the master parent account so I’ll give you an example so let’s say I have a Chase account with three extensions or three users so I’m going to start by creating the let’s say the parent account so let’s do Chase Visa uh uh let’s call it rewards rewards INC plus or whatever it happens to be and that’s going to be our parent account that’s going to be like our overall account that we’re going to reconcile I’m going to do the same thing do the beginning balance let’s say picked up the statement and that closes on the 20th so we’re going to go back to December 20th and then we’re going to put the physical balance on December 20th and we’re going to choose the technique where we’re going to enter the the catchup transactions for December so we can have a clean reconciliation month so let’s say this happens to be 15, 44630 and then we’ll do save and close so that’s my parent account that’s my that’s my master account and the beginning balance is going to be carried there but I have to create each of the extensions each each of the physical cards that are under this one statement and put in them as a sub account so I’m going to come in here and select credit card and then I’m going to choose let’s say uh Hector and then put the last four digits that’s my card that’s Hector’s card and I’ll put that as a sub account in this case of Chase um Chase Visa Inc rewards and then for this one I don’t enter a beginning balance because the beginning balance is being carried by the parent account by the master account then I’m going to click on Save and new cuz I’m going to keep creating accounts and let’s say the next one I gu said new didn’t work let’s do new one more time let’s go and select credit card again and we’re going to put here let’s say Maria this is the the user Make data sub account of the same uh Chase plus Chase rewards plus and then click on Save and new let’s scroll down over here and see that we have my Chase Inc and my two sub users let’s do one more we’ll pick here credit card now hopefully you’re getting the hang of this at this point let’s do Carlos and put the last four digits make it a sub account and look for that account the rewards Plus Inc and then no beginning balance again because the master parent account has that save and close and let’s say that’s it let’s say that’s all of our assets and our liabilities and we use the chart of accounts to build that up so now let’s go to report and let’s go into balance sheet and then we’re going to select last fiscal year that way um last fiscal year we know exactly what our balance sheet looked like before I start using QuickBooks notice that I’m going to have let’s click on run report actually let’s do the beginning of the year that might be easier uh because sometimes those um those uh transactions get created at the beginning of the year so let’s do the beginning of the year and then click on run report and then we’re going to get to see all of our balances so here’s the opening balances that we created here’s the opening balances of the vehicles then we went down here and we we have both of our vehicle loans we have our our two credit cards the AMX and the chase reward and then we have our opening balance Equity that adds up in there now a couple things I’m going to click on all of these uh amounts and this is sort of like General General cleanup sometimes these beginning balances get created at the very beginning of the year year January 1st I actually prefer to bring those back and make sure that those beginning balances are booked on the last of the year because I don’t want this year to show like a weird transaction that technically doesn’t belong to this year because that comes from previous here so you can click on all of these balances in your reports you can click on them and inspect each and every one of them and notice that I’m manually making sure that they they hit 1231 2023 which is what QuickBooks should it done in the first place is just you know sometimes it doesn’t work exact way you want it so I’m just going into each one of these transactions that were created and I’m changing the dates to 12:31 2023 to have a real clean uh balance sheet and then when I run it for last year it actually shows up full uh and complete um different than you know how it was showing when I first tried to do the the last year balance sheet and let’s say these credit cards to I think these should be good because both of these were entered I believe uh prior because those those we had a different date for if you remember those actually were done in December so that’s so the credit cards kind of obey that rule that concept that I mentioned but the other ones didn’t so let’s go back and run the balance sheet account one more time and let’s just make sure that all of the accounts that we uh that we want them to show up for last year uh because this is all the last year exercise they’re showing in there so let’s see both I got both my bank accounts great I have my loan accounts I mean my my assets I have my credit cards I’m still missing the loans so let’s if I push this date up one more day the loans should show up in here and the same thing I want to click on that going into each one and bring that back so that’s going to be um you know the most clean as possible when we run a a previous year and there’s a very specific reason for this which we’re about to show you and this is more of a sort of nerdy technical accounting reason why we do this but let’s just run the balance sheet one more time let’s make sure we got a clean balance sheet here so let’s do last fiscal year last year okay there we go so there’s my two Banks there’s my two assets perfect there’s my two loans and my two credit cards beautiful okay so now what I want to do and again this is a technical thing this is I do want to cover in this video Even though this video is more for beginners I don’t not do not like opening balance Equity accounts it’s actually there’s actually no such thing as an opening balance Equity account that’s a that’s a madeup concept from QuickBooks okay in the accounting World opening balance Equity is actually referred to as retain earnings retain earnings so what I’m going to do is I’m going to take this number 152 80473 let me go back here for a second I’m going to take that number and then I’m going to do a journal entry to move it out of op balance equity and into rain earnings and I do want to mention something again this is the type of stuff that you might need an accountant for journal entries are are tricky I’m going to go into journal entry and then I’m going to date this journal entry 12:31 2023 and then I’m going to move it from opening balance Equity so I’m going to move it out of equity which means I have to debit it and again this is this this is the accounting stuff this is where you might need an accountant to help you with this stuff and one of the interesting things about this is Most accountants never never want to touch the retent earnings account actually I agree with that you should never be touching retent earnings account this is a very special situation where I’m taking last year’s this is not a current clean year that I’m doing I’m taking last year’s entry for the beginning balances and I’m cleaning it up into ritten earnings because that’s where it’s supposed to go again this part super nerdy maybe something you could have you could have skipped but this is like for me the way I want to see a balance sheet um I want it to be right so that’s kind of where it belongs and and to take it one step further it might not all be retain earnings it could be retain earnings it could be beginning Capital it could be additional painting Capital there’s all sorts of layers of complexity in the equity account where you track not just the value of your business but the accumulated assets sorry the accumulated Capital that each of the business owners have uh in that business so gets a little bit trickier I won’t cover that but you do need to maybe discuss that with your accountant to make sure your QuickBooks is fully cleaned up okay so that’s the balance sheet and that’s the exercise of working uh balance sheet accounts uh in the chart of accounts let’s go back to the chart of accounts and let’s talk about profit and loss accounts whole another ball game so we’re going to scroll down here we’re going to see the very last account that has a running balance so right here the very last account had a running balance that’s my last Equity account then we’re going to start looking at our profit and loss accounts which starts with the income account there’s a whole bunch of accounts in here the default chart of accounts in QuickBooks created billable expense income refunds to customers sales sales or product income services on categorized income now I have my own spreadsheet that I put together this is for sanity check as an accountant helping hundreds of people a year get on QuickBooks Online sometimes I like using my own chart of accounts so I have my own profit and loss accounts that I keep track of this is because I prefer it this way and in my same spreadsheet I have a list of my um the default accounts that QuickBooks Online has that way I can compare you know the original one that QuickBooks has versus the one that um that that that I like to use now quick side note uh for all my clients that want me to set up the chart of accounts or not just me but my team I I typically give them my chart of accounts and I load my chart of accounts in there it gets a little tricky when it’s an existing account because there’s ex existing transactions that need to be reclassified but generally when it’s a brand new account I like using my own chart of accounts for my own reasons and the way I you the way I import the chart of accounts into QuickBooks is I export this into Excel and then I go uh in here into um into the chart of accounts click on the drop down menu and then click on import and then once I click on import I click on browse and I go choose the chart of accounts file that I have in Excel in my computer somewhere and then once I’m just going to pick this thing this thing although even though that’s not that’s not it I’m going to load an Excel file or a CSV file click on next and then I’m going to map you know what’s what in here and then once I map it I go to the next screen and then the next screen tells me okay this is all the accounts that you want to import and this is uh all of the account types that each one is supposed to be and then you start loading that in there again that this wasn’t an actual chart of accounts file but that’s how you import your own chart of accounts so if you happen to have a super clean beautiful chart of accounts in Excel that you like to use maybe something your accountant gave you maybe you yourself are an accountant and you have your own template that’s how you would import it you would go into the little drop- down menu next to New and click on import okay um and again I’m going to scroll down here and then I’m going to go through the income accounts and let’s say I don’t like this configuration let’s say I have one account that is for on-site services and one account that is for let’s say remote services so I don’t like any of the income accounts that QuickBooks has here for me so I can create my own categories my own income category so I’m going to go to new I’m going to select the account type I’m going to scroll down to income and then I’m going to pick on detail type the one that makes the most sense so let’s say service fee income and then I’m going to put in here onsite Services okay and then I’ll try to do save a new see if it works this time sometimes it does sometimes it doesn’t let’s go to new again and let’s click on the drop down menu go to go to income and then I’m going to select let’s say um service fee income again and then this will be remote services so let’s say all of my sales of whatever I do service Consulting whatever it is essentially all of the income is going to fall into just those two categories the uh let’s just scroll down here it’s going to be the remote services or the on-site Services now I can start getting rid of the accounts that QuickBooks give me so for example this one called refund to customers I can click on the drop down menu and click on make inactive makeing active and I get rid of that it doesn’t disappear but it gets removed from there some accounts might give you issues like this sales sales of product income and Services I selected three then I’m going to scroll all the way in the top I’m going to click on batch actions and click on make inactive so I’m going to try to make three inactive but anytime there’s an error that it says look I can’t make that inactive because I have it tied to a product or service then you won’t be able to so I’ll do the ones that it can and then I’m going to scroll down one more time see what it allowed me to get rid of and what what it kept so it looks like it got rid of the other two but it kept this one here called uh services and then there’s this one called uncategorized income essentially there’s three accounts you can get rid of one is billable expense income if you get rid of that it comes back 10 times so don’t get rid of it bailable expense income leave it there and on carag income same thing if you delete it it keeps coming back so you have to keep that in there is because those two accounts are used by QuickBooks to fulfill a very specific mechanic so you might need to keep keep those in there um so just leave them in there for now but I do want to address this one services that I couldn’t get rid of let me just try to do it one more time so you can see it says I can’t use it because a product or service is tied to that so we’re going to take a quick break out of chart of accounts and then we’re going to talk about product Services because this is an important link between your items and your accounts so I’m going to click on the gear menu on the top right I’m going to go to an entirely different section of QuickBooks which is products and services and these are going to be the individual items the things that you sell or or buy that you’re going to track in transactions and those tie or map to accounts so then when you create um transactions with those items QuickBooks knows where to C cize them so let let’s let’s add a new item here I’m going to this is I’m in the products and services list and if I go to new I’m going to add a new item I’m going to call it a service and I’m going to say remote one hour support or something like that and just keep in mind this is the name of the item the product or service that’s going to show up in the transaction like an invoice okay then in here I can put uh remote services for it support with with level one Tech or something like that now under income account this is where you pick which category this item ties into and notice this is tied to Services which is why I couldn’t delete the service account but I’m going to tie this one called remote 1 hour support I’m going to uh tie it to my remote account actually let me ex out of that and click on refresh one more time because I just changed the accounts and sometimes it takes a few minutes for the accounts and the items to to sync together so let’s go back into add item let’s do service let’s do remote 1our support okay I want to copy and paste this into the description click on the drop- down menu and now I should see my remote Services there we go and let’s say this is what we charge uh $75 an hour for and if I plan to pay a vendor pay a contractor or something like that for the service and use the same item then I want to put um the same thing here and put uh paid to contractor or something like that and then on their expense account I’m going to put the expense account you know maybe something on cost to good sold called subcontractor expenses or something like that if I’m going to pay a third party to fulfill the work that I’m selling to these clients and let’s say I pay the third party $40 an hour or something like that it’s $40 an hour and if I have a very specific unique person that I always use you can put that on their prefer vendor but you don’t have now this option to make a product or service um eligible for a purchase transaction that’s an option if I uncheck that that goes away completely okay so let’s click save and close and there we go here’s my remote 1H hour support now this item call services I’m going to edit it and I’m going to tie it to let’s say the remote Services click on Save and close and then this one called hours and QuickBook cre is for you I’m going to tie it to remote Services click save and close and the way I the reason I did that is because I don’t want any items to tie to the generic Services account so I can actually delete it so I’m going to click on the gear menu and and check uh income account here so it shows up in the list that way I’m just double-checking that nothing is tying to that generic Services account then I’m going to go back into my gear menu I’m going to go back into chart of accounts and then I’m going to see if it lets me delete that Services income account that I don’t want so let me scroll down here and go into services and let’s now cross our fingers click on making active click on making active and beautiful it let me do it so that’s the tie between the your your uh your items and your accounts let’s see if I can delete this uh sale of product income does it let me do that one too yes it does so now I’m down to the two accounts I actually want on-site services and remote services and the two that I can delete which is uncategorized and building expense income so that’s how you create accounts your own categories that’s how you tie them to products and services and as you go down you can check all your cost to good sold or your expenses and check which is the account which is the account or list of categories that you want when you actually um look at your reports okay so let’s take a look at that let’s go into reports and let’s go into profit and loss and let’s see what a profit and loss looks like with the chart of accounts the way we have it now there are no transactions in my profit and loss because this is a blank file so when I run the profit and loss it just shows a bunch of zeros now one of the cool things about reports in QuickBooks Online is there’s an option for you to show Force show accounts even if they don’t have activity so if I click here it says all and then click on run reports all the accounts in my chart of accounts should show but there’s one caveat for this to show there has to be at least one transaction so at least one transaction in there all the accounts will show so we’re going to create one transaction to make make it very simple here so I’m going to go into new I’m going to go into invoice I’m going to just I’m going to create a customer here really quick let’s do ABC customer and I have an entirely different video that covers invoicing and accounts receivable make sure you check the description all the videos that I have walking you through how to use QuickBooks but essentially I’m going to use this item that we created called remote one 1 hour support let’s say that we’re charging for 3 hours of that and we’re going to date this uh this year at some point uh that way it shows up in the current report that we’re looking at and then we’re going to click on Save and close so as long as there’s one transaction this is a very interesting thing about QuickBooks as long as there’s one transaction in here I can click on where it says all rows and active columns click on all and then essentially my entire chart of accounts will show here now unfortunately it also shows all the deleted accounts which is kind of a bummer because it does kind of mock with the organization of my chart of accounts so you do want to be careful with creating and deleting creating and deleting because as time goes by if you want to use this option to show all you’re going to be showing or you’re going to be seeing this deleted account so that’s kind of a the the bummer now when you look at your profit and loss and we have an entirely different video that talks about manipulating reports and customizing reports but I’m just going to show you something really quick I’m going to click on customize here and then I’m going to click on accept zero amounts basically to show the zeros which makes the report a lot easier to see I’m going to click run report and I do want to warn you one more thing I’m recording this video in January of 2024 and uh QuickBooks is going through a transition period where these profit and loss reports are going to look different they’re going to have an entirely different screen and these settings are going to be all over the place you should have the same settings but it won’t be the same I this is not a reports video and I will be doing updating updated videos focused on just reports all I’m trying to do is illustrate how chart of accounts flow information into uh your your reports now let’s say for example that this one called refunds to customer sales deleted sales of product income and Services I want to kind of just Nest them under one General category that way it’s easier for me to just visually hide them per se if I want to so let’s go back into the chart of accounts okay and I’m going to open chart of accounts in a new tab that way I can keep my report reports here live and I can just click refresh when I’m ready to to look at it again then I’m going look at these accounts that were deleted so I’m going to click on the on the settings button on the right hand side of the screen and click on include inactive that way it’s going to show me the deleted accounts for some reason QuickBooks calls deleted and inactive accounts uses the same term we’re going to go down here and look at all my accounts that are deleted I’m going to create a general category let’s go to new here I’m going to make it income and then I I’ll pick any of these categories here it doesn’t matter and I’m going to call this old slash deleted accounts and I think you’re starting to kind of see read between the lines on what I’m going to do let’s hit save and close here and then I’m going to go look at all my accounts that we deleted okay let’s scroll down here until I find it there we go let’s go to this one go to uh make active so I’m making it active temporarily I’m going to edit it make it a sub account account of my deleted perfect then click save and close then I’m going to go to my next one this um refunds to customers click make active edit delete make that a sub account of my deleted group and by the way there’s nothing wrong with an account called refunds to customers you can have that um just because I’m deleting it doesn’t mean that you need to delete it it’s just I don’t want it right so you need to plan with your accounting team exactly how you want your accounts to look this is this is a very personal very specific to your company decision that you need to make so I’m going to click on edit and then make that a uh put that under the deleted group and then click save and close and now all my accounts have been deleted which I temporarily made inactive so I can edit them they’re showing up here so now I can just select all these here and then go into batch action make inactive and I should be able to make them all inactive in one shot uh with the exception of all the ones that have scroll down here the income so with the exception to the parent account the parent account that still needs to show up in there I can only make the sub accounts I can only make the sub accounts inactive um the the parent account is the one that has to stay active okay so when I go back into my profit and loss report and click on run report what’s going to happen is now all these deleted accounts get it under that one category and then I can just click on the little triangle and then collapse it and then it cleans up the p&l for me and essentially the purpose of doing this sort of work on your chart of accounts is when you go print your chart your your profit and loss report and you have two three four pages that you’re monitoring your numbers in you’re going to lose uh the ability to really analyze your numbers cuz you print a report in four pages is too much so you want to work as hard as possible to not have the goal is not to have as many accounts as possible it’s actually the opposite the account is to have as little accounts as possible that provide the most amount of Rich information you need for your business based on your needs okay so as we go down let’s start looking at all the other categories we have advertising and marketing Let’s see we like that uh let’s say I want to have something called traditional Media or something like that or radio ads I can do that I can come back into my chart of accounts go to new and then go down to expense and then I’m going to call this one radio ads click on the sub account drop down menu and then that’s under advertising and marketing and then click on Save and close I created one more category switch back to my profit and loss there’s three there now so if I refresh then I I expect to see now four in there now do you need to have all this no you don’t uh some people just have advertising marketing no sub accounts and they throw everything in there this is personal based on your business needs you need to figure out how many accounts you have under employee benefits you see there’s a whole bunch of sub accounts there pretty clear we’re going to collapse that under General business expense again a whole bunch of other categories let’s say we like that and we um and we we uh collapse that under insurance we have all these sub accounts that’s great beautiful and again your chart of accounts might look different keep that in mind this is the default chart of accounts that was created with the company I company file I created in QuickBooks yours could look completely different there’s actually no guarantee yours will look anything like this um and then there’s interest paid there’s legal and accounting services there’s meals with clients and travel meals there’s office expenses and then all these subcategories there is payroll expenses and in here you would have uh stuff like payroll tax and that sort of thing even though there’s a category for taxes paid and payroll taxes is in there let’s say I don’t want payroll taxes to be under taxes paid let’s say I want it under payroll taxes so I go back into my chart of accounts I can search the specific account here that way it’s there so taxes paid okay so very specific account called taxes paid I’m going to click on edit and this is my uh taxes paid account actually I’m looking for the one under it which is uh payroll taxes I believe sorry so let’s look at payroll payroll taxes this one right here payroll taxes we’re going to edit that one and then make that a sub account instead of taxes paid I want to move it and make it a sub account of payroll taxes again there’s not this is not the rule or it needs to be like that or not this is based on your needs let’s run the report let’s go down here one more time and then under payroll taxes now I have under payroll expenses I have both payroll taxes and wages so you’re going to go through all these and you’re going to figure out what what works uh best for you look there’s utilities there’s uncategorized expense this is another example uncategorized expense is one that you cannot um change QuickBooks gives you that you have to leave that in there because when you connect your Banks and QuickBooks just so know where to categorize stuff that’s where it’s going to put it it’s going to put it under uncategorized expense now sometimes uh you can merge accounts that are redundant so let’s say for example that you think electricity Heating and Cooling are redundant you can collapse them to or you can merge them and let’s say for example disposal weight fees and water and sewer we also want to do the same thing with that so let’s do one at a time let’s take this one called Heating and Cooling I’m just going to copy the name of it and uh actually let’s that we’re going to collapse that with merge that with electricity so I’m going to copy electricity actually I’m going to copy electricity then I’m going to go find heating and cooling in the chart of accounts let’s type here Heating and Cooling there we go we’re going to edit that and we’re going to change the name from Heating and Cooling to electricity see I had copied it so I pasted it then when I click on Save and close QuickBook says hey wait a second that account it’s already duplicated would you like to uh merge it then you’re going to say yes now these chart of account screens they they look different for different people sometimes you will have a drawer on the right hand side that will be um that will be showing the me the mechanics of creating these accounts and instead of having the popup they would look slightly different so I’m going to show you what that looks like just in case your screen looks one way or the other this is the tricky part of dealing with QuickBooks as sometimes you’ll have one screen that behaves a certain way versus others that behave a different way depending on your company file so I switched I switch modes so now you’re going to see the chart of accounts behave a little bit different when you create new accounts but anyway let’s go back into here and let’s say that this one um disposal weight fees this is the one that we’re going to condense into water Water and Sewer so I’m going to copy Water and Sewer I’m going to go back into my chart of accounts I’m going to look for uh the waste fees this PO on W fees I’m going to click on edit and see now it’s a drawer on the right hand side so depending on again your QuickBooks might have the popup you saw earlier or it might have the drawer on the right hand side and they work very similar and we’ll kind of show you how this one works so I’m going to change the account name in here to match Water and Sewer it’s under the category utility so it’s under the sub category of utilities and then now the the warning for the merge is actually the two lines highlighted in red letting you know this is going to be merged then when I click on Save now we get instead of a popup that says would you like to merge them you get the message right there inside the drawer and then you click on merch accounts and then click on Save and then does the same process so it kind of gives you an idea more or less how that how that functions let’s say I want to go back in here click on U run report go look at my accounts and you’re going to see the old um utilities you’re going to see the old accounts that were deleted again that’s only because we’re forcing them to show because we did the all options once you enter transactions anything that’s a zero gets automatically deleted but let’s say that this one called Water and Sewer I want to add water sewer and Disposal I want to rename it so I go back into the chart of accounts I’ll type water okay I’m going to click on the uh the edit menu and then now it’s using the drawer on the right hand side so we’re going to change the name from water sewer and Disposal fees notice that there’s always a description you can keep it you can delete it the descriptions really don’t do anything other than kind of help you guide you to the process let’s click on Save and that does that so I go back into my profit and loss I click on run and then scroll down to utilities and and there we go here’s all my C categories let’s go down to travel we have airfare hotels taxi and right chair vehicle rental uh let’s say I also want to have um a category for um for miscellaneous things that I buy at the airport for example so one called misscellaneous travel so I want to create a category under travel just called miscellaneous travel and that’s typically a good idea to have like I don’t like miscellaneous accounts but whe they’re under a general category I’m okay with that so I can have one called miscellaneous travel I can have miscellaneous utilities I can have miscellaneous uh payroll I can have miscellaneous office that sort of thing so there’s sort of a catch up opt a catch all option inside those uh parent categories so let’s go and create a miscellaneous travel so let’s come in here let’s go to new now we have the drawer on the right hand side we’re going to pick expenses remember income and expenses are profit and loss accounts under save account under this is where I’m going to go look for that travel account so see the mechanics a little bit different it doesn’t have the check box that says sub account off you just pick whether it’s going to be part of the general expenses or if you don’t pick the parent General expenses then automatically by picking anything that’s under that that would be like sub account off so let’s go down to travel and then we’re going to call this one miscellaneous travel okay yes I’m putting it uper case I know driv some people with OCD crazy so let’s go to save and let’s go back to our profit and loss and click on run report so we know exactly what’s happening and there’s my miscellaneous uh travel okay now one thing to keep in mind uh QuickBooks always orders accounts in alphabetical order unless you turn on account numbers if you turn on an account number then it’s going to use uh the account number for ordering which is my preferred method of looking at accounts so how would that work so let’s click on the gear menu let’s go to account and settings and let’s go down to Advanced and then here where it says chart of accounts we’re going to click on enable chart of accounts and show the numbers so we’re going to turn them on so they show up in the chart of accounts and we’re going to show them so QuickBooks can order it by account numbers then I’m going to click on Save and click on done and most beginner users don’t like account numbers they feel it confuses them accountants love it account number so we got to figure out somewhere in between you know I think it’s not that bad once you get used to using account numbers it’s pretty easy as I mentioned earlier I have my own chart of accounts that already has all the numbers so obviously for me it’s easy to deal with that because every single client I have uses the same account the same number uh combination so as I categorize stuff I start memorizing the numbers and I sometimes I just look at a expense and just say oh yeah that’s 529 or something like that so that’s the cool thing about uh knowing your chart of your your numbers in your chart of accounts that you can either recall it by name or recall Call It by number we’ll show you an example of that so let’s uh come back into our chart of accounts and I’m going to click on the on the gear menu actually let me click on refresh because I just turned on the account number so this screen now to needs to recognize that we have account numbers and I’m going to click on the gear menu and make sure that the number it’s enabled so now I see that my numbers are enabled and I’m going to start adding numbers to these accounts and this is kind of a long process I know but this is the problem with the default chart of accounts don’t give you good account number so for example I’m going to add account numbers only to the ones that I’m going to use so I’m going to use on-site services and remote Services those are the two that I want to use and everything else I leave it without a number you can do that so let’s go into the little pencil button here and then go down to each of the accounts that I want to edit the number for so let’s say that for my on-site Services I’m going to call this [Music] 4101 and the remote Services is 41 1 02 now rot of thumb income accounts start with four cost to good hold accounts start with five expense accounts start with six or seven and then other income and other other expense is going to be eight or nine and then assets let me just go up here assets like bank accounts those start with ones so let’s do 10101 10102 10103 uh liabilities start with two so for example let’s say I’m going to go down to my credit cards and do 2011 0 2011 01 2011 02 notice the the logic that I’m using for these okay I’m trying to keep them into like logical sequence so when they’re organized like that and then the equity accounts they’re all start with three so let’s do 30101 and then I go down here and just assign mul actually opening balance Equity I don’t use that one so I would never put a number on something that I don’t mean to use and that’s kind of like how I that’s kind of how I how I see uh Logic on these things um where if I know for a fact I don’t mean to use it then I don’t put an account number on it so I’m just going in here these are the equity accounts so I’m putting account numbers on those and again I’m not going to do it um in all of them I just kind of want to show you uh the process let’s go down down here to travel and let’s say travel is going to be 60700 and then my expenses are going to be 60701 I want miscellaneous to be the last one so let’s do 60702 skip miscellaneous 6073 vehicle rent or 6074 and then for miscellaneous I’ll do 6075 so notice I’m I’m overriding the numbers in here so I can see the accounts on a very specific order and that’s what I’m going to that’s what I’m trying to show you that the the the account numbers actually have rhyme reason and logic to them so let’s go back into my profit and loss account report click on reports notice that the two accounts I want to use have numbers the ones that I don’t don’t and that’s kind of how I differentiate between the chart of accounts I meant to put together and the chart of accounts that QuickBooks is forcing on me if I can delete the accounts go down and look at my travel notice that my travel is showing number one because none of the s have numbers so of course numbers take priorities and notice that QuickBooks is now respecting the number sequence all of these accounts need to have a a natural number sequence and especially if they’re going to be sub accounts make sure that you um make the parent account a z0 or something like that so you have plenty of numbers under that so you can have a logical sequence inside of those parent accounts and that’s essentially how you organize your chart of accounts and essentially what the chart of accounts means to you is the way you organize your categories of your income and expenses so you can put them in a financial reports in ways that it that it’s useful and meaningful to you so anyway this is that was the chart of accounts master class hopefully that was helpful hopefully you get acquainted with your own chart of accounts that way you um you have a really pleasant experience using QuickBooks I do sell my chart of accounts for advanced users for accountants that like my own chart of accounts I’ll put a link into that in the description somewhere if you want to buy the chart of accounts and import it into your QuickBooks online if you’re a brand new user if you’re not an accountant I don’t recommend you just import your accounts in your QuickBook file because it could become a mess so that’s really for the advanced type of users and if you need private one-on-one support um to help you set up your own chart of accounts I’ll put my contact information my firm’s contact information down in in the description and you can schedule and oneon-one with one of the consultants in my firm to walk you through this process and make this a real uh a personal experience that pertains to your business that way your chart of accounts doesn’t have anything you don’t need only the stuff you actually need and understand anyway hope this video was useful check out the description for all other videos that we recommend you watch after this as part of you know a multi-part series And subscribe to the channel to to be notified when I create another video just like this thank you and I’ll see you on the next one

By Amjad Izhar
Contact: amjad.izhar@gmail.com
https://amjadizhar.blog

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