Inuit Quick book understand chart of accounts

Understand your chart of accounts

By Smith Solace

The chart of accounts is the backbone of your accounting system. That's why it's so important to understand how it works.

Think of a chart of accounts as a file cabinet, with a file for each type of accounting information you want to track. For example, if you need to know how much money you spend on postage, you'll set up a file (an account in the chart of accounts) for Postage Expense.

Although you aren't required to use account numbers in your QuickBooks chart of accounts, your accountant may recommend that you do so.

What are standard chart of accounts number ranges?

Standard chart of accounts number ranges

Assets

Assets are things your company owns. They're usually divided into two groups–current assets and fixed assets. Current assets are generally numbered from 1000 – 1499. These are assets that you can easily turn into cash, such as checking accounts, savings accounts, money market and CD accounts, accounts receivable, and inventory. So you might want to use account number 1100 for your company checking account because a checking account is a current asset.

Assets are things your company owns. They're usually divided into two groups–current assets and fixed assets. Current assets are generally numbered from 1000 – 1499. These are assets that you can easily turn into cash, such as checking accounts, savings accounts, money market and CD accounts, accounts receivable, and inventory.

Fixed assets are usually numbered from 1500 – 1999. These are items with a minimum cost (for example, $500) that you would have to sell to generate cash. Automobiles, equipment, and land are examples of fixed assets. For example, suppose last year your company bought a new computer system for $1,100. Since the cost of the system was more than $500, the purchase was entered to an asset account rather than to an expense account. Consult your accountant or tax preparer to determine the actual minimum cost you should use to determine fixed assets.

Liabilities

Liabilities are funds your company owes. For example, say your company borrowed $20,000 from the bank. When the $20,000 loan was deposited to the checking account, the deposit was entered in the liability account Bank Loans, not an income account.





Capital

Your capital account structure depends on whether your company is organized as a sole proprietorship, partnership, or corporation.

If your company is a sole proprietorship, you need a Capital account and an Owner's Drawing account. Use the Capital account to keep track of the total amount of money you've invested since starting the business, plus or minus the net profit or loss each year since you started the business. Use the Owner's Drawing account for money you take out of the business for personal use, such as checks to the grocery store, dry cleaners, ATM transactions, your salary, and any money that gets deposited into your personal accounts. It's important to keep in mind that the owner of a sole proprietorship doesn't get a regular "employee" paycheck with money deducted for payroll taxes. Instead you pay quarterly estimated taxes, which you should always allocate to the Owner's Drawing account.

If your company is a partnership or LLP (Limited Liability Partnership), you need to set up Capital and Drawing accounts for each partner.

If your company is an "S or C corporation" or an "LLC corporation," it should have a Common Stock account and sometimes a Preferred Stock account. Common stock and preferred stock represent the total sum of stock the company has issued. An LLC might have Member stock if there is more than one person who owns stock.

Equity/Capital

Your capital account structure depends on whether your company is organized as a sole proprietorship, partnership, or corporation.

If your company is a sole proprietorship, you need an Equity account and an Owner's Drawing account. Use the Equity account to keep track of the total amount of money you've invested since starting the business. Use the Owner's Drawing account for money you take out of the business for personal use, such as checks to the grocery store, dry cleaners, ATM transactions, your salary, and any money that gets deposited into your personal accounts. It's important to keep in mind that the owner of a sole proprietorship doesn't get a regular "employee" paycheck with money deducted for payroll taxes. Instead you pay quarterly estimated taxes, which you should always allocate to the Owner's Drawing account.

If your company is a partnership or LLP (Limited Liability Partnership), you need to set up Equity and Drawing accounts for each partner.

If your company is an "S or C corporation" or an "LLC corporation," it should have a Common Stock account and sometimes a Preferred Stock account. Common stock and preferred stock represent the total sum of stock the company has issued. An LLC might have Member stock if there is more than one person who owns stock.

Income or Revenue

"Income" or "revenue" is the income you get from your normal day-to-day business tasks, such as professional fees, income for services rendered, reimbursable expenses, or products you sell.

Job or Project Costs/Cost of Goods Sold

Job or Project Costs, or Cost of Goods Sold, are all the costs associated with your line of business. For example, if you're a home builder, the job costs are whatever it costs you to build a home, including direct labor, materials, subcontractors, and equipment rental. If you sell products, this includes cost of inventory, raw materials, freight charges, and any labor for building the finished goods. Other examples of project costs include reimbursable expenses such as overnight mail, court costs (for an attorney's office), blue prints (for an architect), and purchases made on behalf of the customer such as furnishings bought by an interior designer or auto parts bought by a mechanic.

Job Costs/Cost of Goods Sold

Job Costs (also called Cost of Goods Sold in QuickBooks) are all the costs of building your product. If you're a home builder, the job costs are whatever it costs you to build a home, including direct labor, materials, subcontractors, dump fees, and equipment rental. If you design homes, the job costs include all your costs of designing a home, such as design labor, drafting materials, supplies, and engineering costs. If you do both designing and building, you'll have both sets of costs.

Project Costs/Cost of Goods Sold

Project Costs (also called Cost of Goods Sold in QuickBooks) are costs that relate to your projects. For professional service businesses, project costs are the costs that you incur in order to complete a project. Project costs are also referred to as direct costs. For example, if you hire an outside consultant and his or her time is billable to the customer, that is a direct or project cost. Other examples of project costs are reimbursable expenses such as overnight mail, messenger service, court costs (for an attorney's office), blue prints (for an architect or engineer), and purchases made on the behalf of a customer, such as furnishings bought by an interior designer or computer parts bought by a computer technician.

Cost of Goods Sold

Cost of Goods Sold includes the cost of raw materials, freight charges for getting raw material to a warehouse, labor for building the finished goods, and freight charges for getting the goods to the customer. For manufacturing businesses, the Cost of Goods Sold includes the costs incurred in producing or building a product. For a wholesale business, Cost of Goods Sold are the costs of the goods you purchase for resale. for a distributor business, Cost of Goods Sold are the costs to purchase and distribute goods to the customer.

Overhead Costs or Expenses

Overhead Costs, or Expenses, are fixed costs you have even if you run out of work. Examples include rent, telephone, insurance, and utilities.

Other Income

Other Income is income you earn outside the normal way you do business, including interest income, gain on the sale of an asset, insurance settlement, a stock sale, or rents from buildings you own.

Other Expense

Other Expense is an expense that's outside of your normal business, such as a loss on the sale of an asset or stockbroker fees

About the Unified Chart of Accounts (UCOA)

UCOA© is the Unified Chart of Accounts for nonprofit organizations that was developed by the California Association of Nonprofits (CAN) and the National Center for Charitable Statistics (NCCS). This standardized chart of accounts was designed so that nonprofits can quickly and reliably translate financial statements into the categories required by IRS Form 990, the Federal Office of Management and Budget, and other standard reporting formats. UCOA also seeks to promote uniform accounting practices throughout the nonprofit sector. UCOA was developed by a consortium of various nonprofit organizations.

Importing UCOA

QuickBooks includes a copy of UCOA. It is used automatically if you create your company file using the EasyStep Interview and select Nonprofit for your industry type. If you want to import the UCOA (for example, if you did not use the EasyStep Interview to create your company file, or if you created your company file with QuickBooks Pro), go to the Nonprofit menu and choose Import Nonprofit Chart of Accounts (UCOA).

Using UCOA in QuickBooks

To add an account that is not in UCOA, add it as a subaccount of an existing account. For example, if your organization tracks membership dues for youth, adults, and seniors separately, you can create three subaccounts of 5310 Dues and call them 5311 Youth, 5312 Adults, and 5313 Seniors.

Note: In general, the accounts in the Unified Chart of Accounts are sorted by type in the following order:

1. Assets
   
2. Liabilities
   
3. Equity (net asset accounts in nonprofit terminology)
   
4. Income and expenses
   

Chart of accounts

A complete list of a company's accounts and their balances. Use it to track how much money your company has, how much money it owes, how much money is coming in, and how much is going out. When you created your QuickBooks company file, QuickBooks set up a chart of accounts for the company.

The accounts that appear on the balance sheet are called "balance sheet accounts." Other accounts track particular kinds of expenses or income.

To open the chart of accounts:

• Go to the Lists menu and click Chart of Accounts.
  
• Go to the Company menu, choose Lists, and click Chart of Accounts.
  

Example of standard account numbers

Although you aren't required to use account numbers in your chart of accounts in QuickBooks, your accountant may recommend that you do so. Here are standard chart of accounts number ranges:

10000 - 19999 Assets
20000 - 29999 Liabilities
30000 - 39999 Equity
40000 - 49999 Income or Revenue
50000 - 59999 Job Costs/Cost of Goods Sold
60000 - 69999 Overhead Costs or Expenses
70000 - 79999 Other Income
80000 - 89999 Other Expense

10000 - 19999 Assets
20000 - 29999 Liabilities
30000 - 39999 Capital
40000 - 49999 Income or Revenue
50000 - 59999 Project Costs/Cost of Goods Sold
60000 - 69999 Overhead Costs or Expenses
70000 - 79999 Other Income
80000 - 89999 Other Expense

10000 - 19999 Assets
20000 - 29999 Liabilities
30000 - 39999 Capital (Equity)
40000 - 49999 Income or Revenue
50000 - 59999 Cost of Goods Sold
60000 - 69999 Overhead Costs or Expenses
70000 - 79999 Other Income
80000 - 89999 Other Expense


  

 

How to use account registers (chart of accounts)

Each register is a record of all activity that affects that account's balance. You can use your account registers to enter most transactions (checks, bills, deposits, and so on) as well maintain the account (make adjustments, void transactions, and so on) In QuickBooks, only balance sheet accounts have registers. Income and expense accounts do not.

• Opening a register
  

• Jumping to a transaction in a register
  

How to enter...

• Statement charges (in a customer or A/R register)
  
• Checks, bank deposits (in a bank account register)
  
• Bills, vendor credits (in an A/P register)
  
• Split transactions
  

Other operations with registers

• Editing a transaction in a register
  
• Moving a transaction to a different account
  
• Transferring funds from an account register
  
• Printing a register
  
• Voiding or deleting an entry in a register
  

Saving time

• Using the calculator
  

Reference information

• Table of transaction type codes
  
  
   

Add to your chart of accounts

When adding a new account to your Chart of Accounts, if QuickBooks can suggest accounts (or subaccounts) that you might want to use, they display in the Example Accounts window and you can add them to your Chart of Accounts. This saves you data-entry time.

To do this task

1. Click the account (or subaccount) in the Example Accounts window to select it.
   
2. Click OK.
   
3. In the Add New Account window, review the account information and change it if necessary.
   
4. Save the information. (Now the account appears in your Chart of Accounts.)
   

Notes:

• If a parent account is grayed-out, it is already part of your Chart of Accounts and you cannot add it again; however, if there are any available child subaccounts, you can add them.
  
• If child subaccounts are grayed-out, but the parent account is not gray, you must add the parent account and then you can add the child subaccounts. (Both parent and children display when the parent is not part of your Chart of Accounts, to show you the account hierarchy.)
  
• If you delete an account from your Chart of Accounts, it will appear in the Example Accounts window.
  

Before you add a new account

• When should I add a new account?
  

You add new accounts as your business grows and changes. For example, you may need to add one or more of the following accounts:

• Income accounts to track new sources of income
  
• Expense accounts to track new types of expenses
  
• Bank accounts when you open new checking, savings, or money market accounts at your bank
  
• Credit card accounts when you acquire new credit cards
  
• 
  
  Other kinds of balance sheet accounts to track specific assets, liabilities, or equity
  For example, you may need to add a fixed asset account to track the depreciation of a new equipment purchase, a long term liability account to track a business loan, or an equity account to track the investment from a new business partner.
  
  
  
  
• What information do I need to add an account?
  
• 
  
  When you add a new account, have the following information on hand:
  • All bank statements (checking, savings, credit card, etc.) ending on or shortly before your start date.
    
  • All transactions for your bank accounts that were not recorded (cleared) as of your start date.
    
  • Value of your assets, liabilities, credit cards, and other accounts as of your start date. If you have an accountant, he or she can provide you with this information on a balance sheet.
    
  • Customer names and the amount owed to you as of your start date.
    
  • Vendor names and the amount you owed to those vendors as of your start date.
    
  • All historical transactions (checks, invoices, etc.) made since your start date through today.
    
  
  
  When you add a new account, have the following information on hand:
  
  
  • All bank statements (checking, savings, credit card, etc.) ending on or shortly before your start date.
    
  • All transactions for your bank accounts that were not recorded (cleared) as of your start date.
    
  • Value of your assets, liabilities, credit cards, and other accounts as of your start date. If you have an accountant, he or she can provide you with this information on a balance sheet.
    
  • Customer names and the amount owed to you as of your start date.
    
  • Vendor names and the amount you owed to those vendors as of your start date.
    
  • All historical transactions (checks, invoices, etc.) made since your start date through today.
    
• What if I use a credit card account for both business and personal expenses?
  
• It's recommended that you keep a separate credit card for your business expenses. If you have a business credit card that you occasionally use for personal expenses, set up an account for it in QuickBooks. Do not set up a QuickBooks account for a personal credit card that you sometimes use for business. In either case, you'll need to set up a special account to track your "mixed" purchases.
  

1. 
   
   If you use account numbers, enter the account's number in the Number field.
   
   Example of standard account numbers
   
   

Although you aren't required to use account numbers in your chart of accounts in QuickBooks, your accountant may recommend that you do so. Here are standard chart of accounts number ranges:

10000 - 19999 Assets
20000 - 29999 Liabilities
30000 - 39999 Equity
40000 - 49999 Income or Revenue
50000 - 59999 Job Costs/Cost of Goods Sold
60000 - 69999 Overhead Costs or Expenses
70000 - 79999 Other Income
80000 - 89999 Other Expense

10000 - 19999 Assets
20000 - 29999 Liabilities
30000 - 39999 Capital
40000 - 49999 Income or Revenue
50000 - 59999 Project Costs/Cost of Goods Sold
60000 - 69999 Overhead Costs or Expenses
70000 - 79999 Other Income
80000 - 89999 Other Expense

 

What if there is no Number field?

If the Number field doesn't appear in the New/Edit Account window, the account numbering feature is turned off.

 

1. (Optional) Enter a short description of the account in the Description field.
   
2. (For bank or credit card accounts) Enter a bank or credit card number for this account.
   
3. 
   
   (Optional) To make this account a subaccount, select the Subaccount of checkbox and then click the drop-down arrow to select the account under which this account will be added.
   
   Why use subaccounts?
   
   Loading, please wait . . .
   
   
4. 
   
   (For income and expense accounts) Click the Tax Line drop-down list and choose the appropriate tax line, or choose <Not tax-related>.
   
   Why should I select a tax line?
   
   How do I select a tax line?
   
   If you're a sole proprietor who files a Schedule C, and you have a main revenue or sales account, choose the Sch C: Gross receipts or sales tax line.
   
   Keep in mind that the business tax lines closely approximate categories that most businesses use.
   
   To avoid duplication in your income tax reports, don't associate both the parent account and the subaccounts to tax lines. Associate only the subaccounts to tax lines, as this will provide you with more detail in your reports.
   
   Restriction regarding balance sheet accounts
   
   What if the list of tax lines is missing?
   
   
5. 
   
   If the Enter Opening Balance button displays, you can enter the opening balance for the account.
   
   Enter the opening balance for the account
   
   
6. 
   
   (For balance sheet accounts) Enter an opening balance based on the account's balance as of your QuickBooks start date. If you're not sure of the balance, you can leave the field blank and enter the information later.
   
   If the account is new
   
   If the account is an A/R or A/P account
   
   
7. 
   
   (For expense accounts only) To track reimbursed expenses as income, select the Track reimbursed expenses in: option, click the Income Account drop-down list, and then choose the appropriate income account. If this option is not visible, you must reset your preferences for sales and customers.
   
   Set preferences for sales and customers
   
   
8. 
   
   Click Next to save the account and enter another one.
   
   or
   
   Click OK to save the account and close the window
   
   

It's recommended that you keep a separate credit card for your business expenses. If you have a business credit card that you occasionally use for personal expenses, set up an account for it in QuickBooks. Do not set up a QuickBooks account for a personal credit card that you sometimes use for business. In either case, you'll need to set up a special account to track your "mixed" purchases.