The QuickBooks Chart of Accounts is the backbone of your entire accounting system, and it’s important that you understand how it works.
Think of your Chart of Accounts as a filing cabinet with individual files for each type of accounting information that you wish to track. For example, if you need to know how much money you spend on small tools that cost under $50.00, you would create a file (Expense account in the Chart of Accounts) for Tools Under $50 and post (file) all your purchase receipts (checks, cash expenses, credit card receipts, etc.) to that account.
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The Chart of Accounts is a complete list of a businesses accounts and their balances. You will use it to track how much money you have spent, how much money you have – and - how much money you owe.
The Chart of Accounts also holds information about the following:
Assets – things your company owns. This section is usually divided into two groups.
- Current Assets – things you can easily turn into cash, such as; checking accounts, savings accounts, money market accounts, accounts receivable, and inventory.
- Fixed Assets – items with a minimum cost (for example $500.00 or more) that you could sell to generate cash, such as; trucks, equipment, or land.
Liabilities – money your company owes others. This is usually broken down into two groups.
- Current Liabilities – things that will be paid off within a year, this would include; accounts payable, credit cards, payroll taxes, etc.
- Long-term Liabilities – things that will take more than a year to pay off, this would include; a truck loan, equipment loan, a loan to buy a piece of property, etc.
Equity or Capital – is the difference between what you have (your assets) and what you owe (your liabilities)
Income/Revenue – the money that you receive from your normal day-to-day business operations, such as; professional fees, services rendered, products you sell, etc.
Cost of Goods Sold/Job Costs/Direct Expenses – all the costs of building or assembling your product or service; direct labor, materials, subcontractors, equipment rental, etc.
Expenses/Overhead Costs – fixed costs that you would have even if you ran out of work; rent, telephone, utilities, etc.
Other Income – money that you earn outside of the normal operation of your business; interest income, rent of a building, etc.
Other Expenses – are expenses that are outside of your normal business, such as; a loss on the sale of an asset, stockbrokers fees, etc.
QuickBooks comes with several “pre-configured” Chart of Account lists, which you can select during the EasyStep Interview when you create a new company file, however, these pre-configured lists seldom meet all of your needs – which means that you will have to add to them in order to meet the needs of your company.
Other Chart of Account blog articles:
- Using Account Numbers in your QuickBooks Chart of Accounts
- The Chart of Accounts and it’s Many Uses in your business
- Modifying & Working with your Chart of Accounts
The “myth” of do-it-yourself accounting is a popular myth that is associated with QuickBooks and one that is presented to you from various sources.
For example, you walk into the local Staples, Office Max, or what have you, and go to the software section – there they patiently sit on the shelf, those popular accounting packages (QuickBooks, Peachtree, Microsoft), just waiting for you.
You look, you consider, you may even touch – can’t you hear them whispering to you? They all seem to say, “You need me. You don’t need a bookkeeper or accountant to use me. Just think about how much time and money I’ll save you. I’m so much easier to use than (competitor).”
You feel the lure of those seductive little marketing messages that they whisper to you, but be careful about falling for that “do-it-yourself” myth, because these seductive little messages don’t include some very important information that you need to know in order to make a sound business decision; such as:
- Which version should you buy? The actual software box or company website may list several different versions of the program that are available for you to purchase, there may even be a comparison chart. Will you understand what these differences are and more importantly, how these differences meet the needs of your business.
- Will you be able to get it set up correctly? This is a biggie! The program you are about to purchase doesn’t have any built in mechanism to double-check your setup or your entries; this means you really don’t have any way of knowing if you are doing it correctly or not. Even if you get “some” or “most” of the setup and data entry right – is this good enough? Will it be “good enough” to get you the job costing that you need? Will “close enough” be an acceptable defense if the IRS or any other State or Federal agency audits your books?
- There is a lot of setup. While the box or the website might boast about “easy setup through the use of an interview or wizard”, it doesn’t tell you that AFTER that initial setup interview that there is still a lot of work that needs to be done. It also doesn’t tell you that often times that the wizard or interview is full of unfamiliar terminology that isn’t explained very well.
- Technical Support. Readily available bookkeeping/accounting packages such as these are usually packed with nifty little features and a very reasonable price – but something may be missing – such as technical support. What kind of support is available and for how long? What kind of training materials are available and are they specific to your industry? These are things that you should take into consideration before making a purchase.
- You still need an accountant. Even though the software box or website doesn’t come right out and say that you “don’t need an accountant”, many business owners make the incorrect assumption that purchasing/using/owning the software will either eliminate the need for having an accountant or greatly reduces the need to have an accountant. This simply isn’t true.
- You do need to know basic bookkeeping and accounting skills. While you do not need to be a professional bookkeeper or accountant, you do need to know basic bookkeeping and accounting skills and understand basic bookkeeping and accounting terminology and functions. Take some classes at the local college or adult education.
When you listen to these seductive marketing messages, it’s like taking your Chevy to the Ford dealership (or vice versa) to be repaired. You will be ill-prepared because you will be inadequately trained to do the job at hand. Wondering what this means? Well, what if you made mistakes? Something along the lines of: incorrect reports, incorrect sales tax, incorrect payroll taxes, incorrect payroll, incorrect tax returns, and penalties and interest on those incorrect tax returns. Perhaps just the thought of that makes you shudder and cringe, just from the embarrassment of going through all that.
What can you do to prevent problems like this? Actually, it’s quite simple – find yourself a GOOD bookkeeper, accountant, business advisor who can help you get over that initial setup stumbling block, and perhaps, even take some classes. Bottom line – - – - do your homework and be prepared!
With the holiday season within the reach of our fingertips, we wanted to take a moment to look back at what we’ve accomplished this year — and to say “Thanks” to many who helped us in more ways than we can mention. We’ll take this opportunity to say, Thanks to all of our customers and readers! We feel very fortunate to have had the opportunity to work with or assist you.
Blogging was something new for us at Sunburst, and to be honest it takes a tremendous amount of time and energy to find “new and relevant content”. There are a lot of QuickBooks bloggers out there and quite frankly we wondered what kind of interest there would be in yet another “QuickBooks related blog”.
We’d also like to thank the 217 members of our QuickBooks for Contractors Group on LinkedIn, many of whom are QuickBooks consultants.
To all of you, Happy Holidays!
Our regular blogging schedule will resume on Monday November 29th.
A common conundrum for some bookkeepers is to create a job prior to receiving the contract paperwork, so that materials could be ordered – and then finding when the actual contract arrives that the job was assigned to the wrong customer in the QuickBooks Customer List.
While this may not be an every day occurrence, it does leave one wondering if there is a “correct procedure” for moving the job to the correct parent customer, if it can be done at all, or if you just have to start deleting things and starting from scratch.
In most cases, this situation can be correct easily, however, the smaller the amount of transactions associated with the job that you need to move the better.
Follow these instructions carefully:
- Make a BACKUP of your QuickBooks file.
Generate Reports for Job Costing details, to be used for comparison AFTER you have moved the job from one customer to the other.
- Run a Time by Job Detail Report – filtered for only this job (Reports menu -> Jobs, Time & Mileage -> Time by Job Detail -> Modify Report -> Filters -> Customer:Job -> this Job).
- Run a Profit & Loss Report – filtered for only this job.
- Run an Unbilled Costs by Job – filtered for only this job.
- Run an Open Purchase Order Report – filtered for only this job.
- Run a Job Costs by Job and Vendor Detail – filtered for only this job.
- Additional Reports as necessary.
When you have your printed reports and have made a BACKUP of your QuickBooks data file:
- In QuickBooks, you MUST be logged in as the Administrator in Single-User mode.
- Go to the Customer Center -> Customers & Jobs tab -> select this job -> click EDIT.
- On the Address Info Tab you’ll see a Customer drop down menu, use this to select the correct customer.
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- Change the Company Name, Bill To Address, Contact, Phones, etc. to be the correct information.
- Click OK.
- The Job should now be associated with the Customer you selected.
- REBUILD your QuickBooks file (File menu -> Utilities -> Rebuild Data).
- Run the reports to verify that all the associated transactions also moved.
We hope you have found this tip to be helpful, if so please take a moment to leave us a comment.
Four Certified QuickBooks ProAdvisors/Consultants that I know have teamed up with Intuit to offer a total of $31,000 in FREE QuickBooks 2011 products and services.
Each of these ladies have their own contest rules.
It can be as easy as signing up for a newsletter to writing a review of QuickBooks Accountant 2011 to commenting on a review to joining a QuickBooks LinkedIn Group.
You need to visit their websites to get the latest information on what each is giving away and how to enter each of their contests. Click on their names listed below and you will be whisked away to their web pages, which explain their give-aways. Have fun and good luck!
- Ruth Perryman
- Michelle Long
- Bonnie Nagayama
- Laura Madeira
