QuickBooks Tip – Modifying & Working with your QuickBooks Chart of Accounts
Setting up or modifying an existing Chart of Accounts is not an overwhelming task in QuickBooks.
If you are new to QuickBooks, when you create your company file (File menu -> New Company), the EasyStep Interview provides you with a “wizard”, industry specific templates, and example accounts are even suggested. If you need a starting point, grab your tax return or financial statement compiled by your outside accountant, and enter the accounts you find there, turning summary accounts from the financial statements into subaccounts in QuickBooks.
If you have already started using QuickBooks you can easily add, edit, or merge accounts in your Chart of Accounts for your business with a matter of a few clicks of your mouse by selecting the Lists menu -> Chart of Accounts OR Company menu -> Chart of Accounts.
By creating a more organized and efficient chart of accounts, you will not only save on accounting fees but you will improve your in-house reporting as well.
Always BACKUP your company’s QuickBooks file before making ANY changes (File menu -> Save Copy or Backup) – just in case, you wish to reverse the process.
To add an account, click the Account button at the bottom of the Chart of Accounts list and choose New. QuickBooks prompts you to choose what type of account you want to create – Income, Expense, Fixed Asset, Bank, Loan, Credit Card, Equity, Accounts Receivable, Other Current Asset, Other Asset, Accounts Payable, Other Current Liability, Long Term Liability, Cost of Goods Sold, Other Income, or Other Expense. As you select an account type to create, QuickBooks even includes a suggestion box on the right-hand side of the window, listing common accounts under each account type.
To change an account name or type, right click on the account that you wish to work with and choose Edit Account, and simply type in the new name or select a different account type.
If you have duplicate accounts, Edit the duplicate, and in Account Name, enter the name of the account you wish to keep; all of the information in the previously separate accounts become merged into the one remaining account. As a precaution, before merging accounts, it would be prudent to make a copy of your QuickBooks file in the event that you discovered later that a merge was inappropriate.
Subaccounts are a critical feature of structuring your Chart of Accounts and ultimately your reports in QuickBooks. For example, on a tax return, rather than report separate totals for electricity, natural gas, and water, it is more efficient to combine their amounts under a heading, “utilities”. It is also true for the various kinds of insurance, professional services, taxes, etc. By grouping such related accounts in QuickBooks, its reports appear more organized and readable, especially since QuickBooks provides subtotals for each grouping.
Creating a subaccount is easy in QuickBooks. Go to the Lists menu -> Chart of Accounts OR Company menu -> Chart of Accounts, highlight the account that you want to turn into a subaccount, click the Account button -> choose Edit Account, click “Subaccount of” and select its parent account.
Note – Accounts may be added to or deleted from the chart of accounts at any time, but an account cannot be deleted once a transaction has been posted to it. Consequently, ensure the chart of accounts is complete and unnecessary accounts have been deleted or merged with another account before recording any transactions.
You are allowed up to 7 digits for an account number in QuickBooks; a minimum of 5 is recommended if you require numerous accounts and subaccounts. Unfortunately, QuickBooks preconfigured their numbering system using 4 digit – which is rather limiting. I often use, and recommend, a 5-digit account numbering system for construction companies:
10000 – 19999: Assets
10000 – 14999: Current Assets
- 10000 – 10999: Cash
- 11000 – 11999: Receivables
- 12000 – 12999: Inventory
- 13000 – 14999: Other Current Assets
15000 – 19999: Noncurrent Assets
- 15000 – 15999 – Fixed Assets
- 16000 – 19999 – Other Assets
20000 – 29999: Liabilities
20000 – 25999: Current Liabilities
- 20000 – 20499 – Accounts Payable
- 20500 – 20999 – Credit Cards
- 21000 – 25999 – Other Current Liabilities
- 21000 – 21999 – Accrued Expenses
- 22000 – 22999 – Payroll Liabilities
- 23000 – 23999 – Debt, Current Portion
- 24000 – 24999 – Capitalized Leases, Current Portion
- 25000 – 25999 – Other
26000 – 29999: Noncurrent Liabilities
- 26000 – 26999 – Debt, Noncurrent Portion
- 27000 – 27999 – Capitalized Leases, Noncurrent Portion
- 28000 – 29999 – Other
30000 – 39999: Equity
- 30000 – 30999 – Capital Stock
- 39000 – 39999 – Retained Earnings
Revenue: 40000 – 49999
50000 – 59999: Cost of Goods Sold
- 50000 – 50999 – Materials
- 51000 – 51999 – Labor
- 52000 – 52999 – Subcontractors
- 53000 – 53999 – Equipment
- 54000 – 59999 – Other Direct Costs
60000 – 89999: Expenses
- 60000 – 69999 – Selling Expenses
- 70000 – 89999 – General and Administrative Expenses
90000 – 99999: Other Income (Expenses)
Of course, there could be an endless variety of accounts under all of the above categories particularly under Expenses: Selling as well as General and Administrative. If there were an insufficient number of accounts required under Selling, you may omit the distinction and lump all under Expenses. If you apply overhead to your jobs reported in Cost of Goods Sold later than posting, you may even wish to add an Overhead grouping under Expenses for those amounts to be allocated to jobs. I find this especially convenient and timesaving, alleviating a frantic search through a mass of expense accounts containing thousands of transactions.
6 Responses to QuickBooks Tip – Modifying & Working with your QuickBooks Chart of Accounts
Leave a Reply
- Using Account Numbers in Your QuickBooks Chart of Accounts
- Calculating & Displaying Fringe Benefits on a Certified Payroll Report
- QuickBooks Payroll Tip - Tracking Employee Advances or Loans
- Straight from the IRS - Social Security Tax Reduced to 4.2%
- QuickBooks 2013 Upgrade Do's, Don'ts & Frequent Questions
- QuickBooks Creating a More Meaningful Payroll Expenses Section
- QuickBooks Tip - Job Costing Starts With A Simple Item
- QuickBooks 2012 - Frequently Asked Questions About Upgrading
- QuickBooks Tip-Handling Employee Reimbursements for Expenses
- The Great Debate – QuickBooks Desktop vs. QuickBooks Online
- QuickBooks Tip - Determing Cost of Goods Sold
- Create a QuickBooks Job Cost Report With Hours & Payroll Costs
- QuickBooks for Contractors Tip – Advanced Progress Invoicing
- QuickBooks for Contractors Tip – Basics of Progress Invoicing
- QuickBooks Tip - Child Support Garnishments
- How To Turn On and Use Manual Payroll in QuickBooks
- QuickBooks 2015- The Good, Bad and Ugly, Part 1
- QuickBooks Tip-Creating a Functional Payroll Liabilities Section
- Welcome to the QuickBooks for contractors blog
- QuickBooks Tip: Important Facts About Items Left as Billable