<- Continuation from Part 1: Balance Sheet Accounts
If you understand how the account structure in QuickBooks works, you’ll be better able to modify the Chart of Accounts.
Your QuickBooks Chart of Accounts is like an electronic filing cabinet. Each account it contains has a running balance that changes depending on the transactions and adjustments it contains. Using numbers for each account is optional, but if you do use them, you should understand their basics.
You can modify the Chart of Accounts, adding new numbers and names, deleting others and changing ones there. Unless you have a solid background in accounting, though, it’s best to consult with an accountant and/or take a QuickBooks class that deals with this topic, since the Chart of Accounts is a critical element of QuickBooks that must maintain a proper structure.
The QuickBooks Chart of Accounts is divided into different sections, with related accounts sharing a subset of the overall numbering scheme. In the last article, we covered Assets, Liabilities and Equity/Capital. Here is the remainder of the list.
40000-49999 Income (or Revenue)
The Income section of a QuickBooks Chart of Accounts (screen shot taken in QuickBooks 2013)
Accounts within this range should be restricted to those that you use for recording funds that are generated from your normal business tasks, like income from products and services you sell, professional fees and reimbursable expenses.
50000-59999 Job Costs/Cost of Goods Sold
What costs do you incur in creating products? This can include:
- Materials, labor and equipment rental
- Raw materials, inventory and freight charges
- Overnight mail
- Court costs, and
- Purchases made on behalf of a customer.
60000-69999 Overhead Costs or Expenses
This category of accounts covers costs that you have regardless of work coming in, like rent and utilities, insurance and telecommunications fees.
70000-79999 Other Income
Do you make money outside of your normal business workflow, like rent, investment sales or interest income? Those funds would be recorded in these accounts.
80000-89999 Other Expense
Similar to Other Income, you’ll use this group of accounts to record expenses like investment losses.
Automatic Account Creation
When you set up QuickBooks, you were told that the software would set up a Chart of Accounts for you automatically. So you may not ever have to do a lot of modifying of your Chart of Accounts unless your business grows significantly and/or you want more precise reports.
Here are some of the accounts that QuickBooks prepares for you when you need them:
- Accounts Payable
- Accounts Receivable
- Payroll Expenses
- Payroll Liabilities
- Purchase Orders
- Uncategorized Income
- Inventory Assets
If you’ve ever taken a QuickBooks training course that covered the Chart of Accounts, your instructor probably told you to be very careful when you’re altering the existing structure. That’s good advice – and another reason to study this element of your accounting system.