 QuickBooks Online, chart of accounts. Get ready to start moving on up with QuickBooks Online. We're gonna be using the free QuickBooks Online test drives searching in our online search engine for QuickBooks Online test drive, selecting the option that has Intuit.com and the URL Intuit being the owner of QuickBooks. Support accounting instruction by clicking the link below giving you a free month membership to all of the content on our website broken out by category further broken out by course, each course then organized in a logical, reasonable fashion making it much more easy to find what you need than can be done on a YouTube page. We also include added resources such as Excel practice problems, PDF files and more like QuickBooks backup files when applicable. So once again, click the link below for a free month membership to our website and all the content on it. We're gonna be using the United States version of the software and verifying that we're not a robot, scrolling in a bit by holding down control up on the scroll wheel currently at the 125% on the zoom in, hitting the cog drop down to note that we're in the accountant view as opposed to the business view. We'll try to toggle back and forth between the two views so you can get a look at both of them. We're gonna be duplicating some tabs up top as we do every time, right click it on the tab to duplicate it, right click it on the duplicate a tab to duplicate it again, back to the tab to the middle we wanna go down to the reports on the left, we want to be opening up the balance sheet report as that's thinking even though it's done, I'm gonna go to the tab to the right and go to the reports on the left. This time the income statement, the P and L the profit and loss, I'm gonna close the hamburger otherwise known as the hamburger and do the range changing. The ranges, they are a changing from 010122 tab 123122 tab run it, if you wanna refresh it and I do so I'm gonna go to the tab to the left and then close the hamburger again, scroll up change the range again from 010122 tab 123122 tab run it to refresh it. That's the setup process we've been doing every time back to the first tab. We're now gonna be looking at one of the primary lists that they call the term lists which once again is a QuickBooks term it's probably not a term that you'll hear for normal accounting practices but because it was housed under that lists dropdown we can call it the major, the primary list which is the chart of accounts. Now remember in prior presentations we've been focusing in on entering the transactions into the system remembering our accounting goal which is from a financial perspective in order to create the financial statements and then also from a bookkeeping perspective to facilitate the financial transactions meaning dealing with our customers and our vendors and our employees as easily as possible and that means we have these data input forms which are gonna be set up and we wanna put them together so that the data input processes as easy as possible and the creation of the financial statements is as automated, as automatic as it can be. Now to do that we first need the underlying foundational thing which is the chart of accounts. We have to have a chart of accounts in order to make any financial transactions. Any of these forms that we enter is gonna be impacting at least two accounts from the chart of accounts in order to create the financial statements, the balance sheet and the income statement with the exception of like an estimate form and a purchase order which don't have an actual financial transaction but we still track them internally. Now most of the time when you go work in an accounting department you don't set up the chart of accounts so you don't get the opportunity. You're oftentimes working even in one cycle like a customer cycle or a vendor cycle. Small bookkeepers for example, they get to do everything but usually not as detailed of a level. So if you're working out a company then you might not have as much experience adding and subtracting working with the chart of accounts directly. We will get that experience more in the second half of the course when we start a new company file where you get to set up that foundational stuff, the chart of accounts, the customers, the vendors, the products and the services. But for now we'll just kind of, we'll take a look at those underlined under the hood kind of foundational items that we do when we first set things up. Now you could find those. We looked at them last time under the cog dropdown and then lists where we have, if I go into the lists here, we've got the chart of accounts and then you can also find it in the accountant view by going to the accounting on the left hand side and then the chart of accounts. I'm gonna say see your chart of accounts so you can look under the hood. He's looking under the hood here. So we're gonna go into there and if it was under the business view, dropdown, switch to the business view just to check out where it's located there. It's under the bookkeeping, under the bookkeeping. And then you've got your chart of accounts under the manage items. So once you're in the chart of accounts, the chart of accounts is gonna be something that's provided oftentimes when you first set up the QuickBooks online. And you would think it would be tied into more deeply when you do the setup process of the system. For example, the QuickBooks desktop version I think is actually quite a lot better at setting up the original chart of accounts because you select things such as what type of industry are you in and are you a sole proprietorship or a partnership? And then it gives you, you would think, a customized kind of sample based on that information. But the desktop version gives you a much more customized chart of account. I believe the online version still is just giving like one giant kind of a chart of accounts for no matter what you do on the data input. So just realize that you might have to go in here and do more customization that you might be used to if you're selecting kind of chart of accounts from the desktop version, which might be a bit more customized. So just realize that the general rule with the chart of accounts when you set up a new company file would be that you're gonna get the chart of accounts from QuickBooks automatically. And then when you enter data into the system, I would then say if there's already an account lined up that matches up to the data you're gonna enter into the system, you wanna use it typically unless you wanna change it for some reason because you think there'd be a better name for it. And then if you're going to change the account, then you typically wanna go in here and change the name of the account. In other words, you don't wanna make two accounts, mainly for expenses this happens that are similar in name. So permits and then another name for permits or legal and professional, and you just call them professional instead of legal and professional. So if you want one for professional and breaking out legal or break out accounting, bookkeeping it and lawyer separately, then you don't wanna have two accounts that are similar or else you and you're not using one because then you'll probably post to it and you'll get kind of mixed up. And then after one or two months of data input, you might wanna then go into your chart of accounts and look for those accounts that you have not used at all and either delete them or make them inactive so that you can then hone down your chart of accounts to the accounts that you're actually using. That's the method that I would think most people would basically want to go through with their chart of accounts. Now, if you don't like the layout of the chart of accounts at all, you could basically try to delete or make inactive all of the accounts and we'll do this when we get to the bank feeds section because we'll practice creating a chart of accounts as we enter transactions from the bank feeds and we'll enter all of the accounts as we do the transactions. So we'll get a feel for that and that way you can be a more customized, more customizable, but you have to have some understanding of how the chart of accounts is set up or better understanding to do that. So let's see how the chart of accounts is set up. Normally we think of the chart of accounts being sorted by the type over here, the type of account. Now, when you think about the account type, you're usually just thinking first on its most basic level, the balance sheet on top of the income statement. So this is the detail type. I should be over here on the type. So notice it's sorted by type. So balance sheet on top of the income statement. So if I go back, so if we go on over to our balance sheet and I was to collapse the balance sheet down to its bare bones, down to its essentials, I'm looking assets, liabilities and equity. We in essence have the accounting equation. So that's how you first want to think of the chart of accounts in essence. You have assets, liabilities, equity on top of in essence income and expenses. If I jump on over to the income statement and break this down to its bare bones, you've got income and then you've got a couple categories cost to good sold, but basically expenses, income and expenses. So assets, liabilities, income and expenses. If I go to the chart of accounts, you're basically thinking we're sorting by account type, balance sheet on top of income statement, assets, liabilities, equity, which is the balance sheet, and then income and expenses. We'll talk more about how the accounting equation fits with the income statement and so on later. But then within those categories, you've got these kind of subcategories. And these are interesting to note in terms of what they're gonna do to the financial statements. How are they gonna be reported on them and why we have some of the subcategories and how they might differ to what you might see in financial reporting. So let's just get a feel for that. The first one is the bank accounts. So I'm gonna open these up and just give a quick reference. We'll talk more about the balance sheet later, but notice you've got assets, which isn't an account type, but you still have the triangle because the triangle represents the full account category of assets for financial statement reporting. You've got current assets, also has a triangle, but isn't an account type over here. You have other current assets, but not just current assets because for financial reporting, we have current assets. But then you've got bank accounts. Now bank accounts is not what you would see normally on financial reporting. You would see cash and cash equivalents, typically. But here we want to call them bank accounts to indicate the fact that these are gonna be accounts that are connected to possibly bank feeds. They have a special usage, and therefore they have a different account type. This triangle right here is driven by the account type. So you can see we have the account type, and then these two are under that account type. So that's a little different than financial reporting purposes. Accounts receivable also has a triangle because it's a different account type. The reason it's different than just current assets is because it has a special need of a subledger relating to breaking out the receivables by customer. So it's a little funny to have a sub account and the account underneath it, but it's driven by the fact that we have an accounts receivable account type in and of itself. Everything else that doesn't fit in that special category or that doesn't have a special category for other current assets is in other current assets, which is our next account type, as we could see here. And then we've got the fixed assets, which are gonna be the property, planted equipment, you might hear them called depreciable assets, buildings, equipment and so on, and the related depreciation that has its own category there. And then we've got our liabilities under the liabilities. That's an overarching category, a financial statement category. That's why it has a triangle. Then we've got current liabilities, which is a financial statement category, but it's not an actual category on the chart of accounts. We have other current out liabilities, but not just current liabilities because they want to make these sub accounts. Once again, accounts payable similar to accounts receivable has a special need to track the payables by who we owe, by vendor, and therefore it has its own account type. That's where the triangle is coming from, accounts payable. And then we've got the credit cards. They have their own special account type because they might be connected to the bank feeds. And that's why you have a triangle here for the credit cards. And then you've got the other current liabilities, which is every other current liability that doesn't have some special need. That triangle is also represented by the account type. Then you've got the long-term liabilities, another category, that triangle represented by the account type. And then you've got the equity accounts. We'll talk more about them in the future, but you can see that's representing another account type down here on the equity. And then you go to the income statement where you have income. And so that's another account type income accounts. Then you have these other triangles in here. Notice that's not because it's a financial account category in terms of a general account category or an account type, but because we made sub accounts, which we'll talk about shortly later. Then you've got the cost of goods sold, that triangle is created by another account type, as we can see here, cost of goods sold. Then you've got your expenses, which is usually your largest category. You've got a bunch of other sub categories under the expenses, which are not account types in of themselves or financial categories, but rather sub account categories. And then way down here, you've got other expenses, which is another account type. That's where that triangle comes from. And you can see the sorting down below. So that's how you generally want to be sorting the chart of accounts. Now note that you can sort the chart of accounts by name, but you typically don't normally do that. Also note, when I sort by account type, it's not sorting by alphabetical order. It's sorting by balance sheet on top of the income statement, and then more specifically, which accounts on the balance sheet on top of which accounts on the income statement, a little bit more detailed. So then you've got your QuickBooks balance. You've got your bank balance. Notice that they have a register here. We're familiar oftentimes with a register for the checking account, which allows us a more simplified data input into the system, possibly used if I'm entering data directly from a bank statement or something. So it's a little easier than to do the full deposit form and check forms or expense forms this way. I'm gonna go back. Also note, however, this is a way you can get to a register for every balance sheet account. And so if you have a simple transaction, that's not normal, meaning it's not like something you use a form for, such as breaking out between short-term and long-term of a note payable, I could use the register instead of a journal entry. I could still enter a journal entry here, but use the register format to do that. So if there's only two accounts that are impacted, that could be useful, especially if you just kind of want to avoid the debits and credits, because now you can think of this account's gonna be going up or down, and then you can just have the other side go into the other side instead of thinking about debits and credits, for example. Okay, and then we have the batch system up top. So if I select multiple items, I can make them inactive at one time. Inactive meaning that, for example, if you wanted to delete the accounts, you might not be able to do that given the fact that the accounts could have been in use in the past and we don't want to delete accounts that were in use. What we want to do is make them inactive so that they don't show up in the future. So they don't show up in here, which can make your data input very quite long. And if I hit the plus button and do a data input form, for example, notice your chart of accounts is gonna be populating in this area. So you'd like to have it as streamlined as possible. You don't want to have 1,000 accounts in here if you don't need to, so that you can make your data input as easy as possible. You can do that by making the ones you're not using inactive. Closing this back out, I'm gonna say, okay, you can search for a chart of account here as well. And then over here, you can also use this pencil to do editing a little bit more quickly. This might be most useful when you first set up the chart of accounts and say you like the chart of accounts that they have, but you wanna tweak the names to be more customized to your names. This might be a little bit faster way than just going and editing each one of them individually. And so then you've got the printing. You can also hit the cog here and you can change, for example, I think I removed the detail type. You can add the detail type back in or make any changes you want to make the look a little bit nicer. The most important thing here, I believe, is the include inactive items. Inactive means we wanted to get rid of them. We wanted to kind of delete them for future use so we don't see them popping up all the time. But if I wanna go back in and see those inactive items, I have to turn this on so that I can see them. You can also increase the amount that you see on one page up to 300 here as well. So those are gonna be those items. If I was going to run a report then, I can, or if I was gonna make a new item, I can make the new item up top into the detail. So here's your bank account. Here's the account type that we would set up. That would be the main thing that you wanna make sure you get right. You've got your sub account, which is not as important. So don't worry about that too much. You wanna get the name that you want here. You might not need a description. The sub account is where you make that other triangle and we'll see that shortly as we go through the chart of accounts here. Let's just go through them real quick now. So I'm gonna, we got the checking accounts. Those are gonna be having a special need because they possibly have the capacity to connect to the banks. That's why they have their own kind of space up top and aren't just other current assets. You've got your accounts receivable, which oftentimes is required to be there. You might not be able to delete it or possibly even make it inactive because QuickBooks wants an account that ties to the sub ledger if you're gonna have receivables. That's why it has its own account type. And then everything else that's basically in other current assets that doesn't have a special need is then within here, you've got your inventory assets. Now note that when you set up your chart of accounts with QuickBooks online, they usually give you this huge chart of accounts which might include things you don't need and you might wanna go through there and basically remove them. We'll talk more about that in the second half of the course and with the bank feeds or in other courses of bank feeds. And when we set up a new account, but if you don't have inventory, maybe you can remove the inventory asset. Prepaid expenses is another one that's an accrual account. If you're on a cash-based system, maybe you don't want it there or maybe you want a more specific prepayment such as prepaid insurance or something like that, in which case you can change the name or remove it. You've got the uncategorized assets. Anytime it says uncategorized, that's usually what QuickBooks uses to default to a transaction when it needs to make the double entry accounting system in balance but it doesn't know where to put it. Therefore, anytime you see something in uncategorized assets or uncategorized expenses or uncategorized revenue or sales, it's an indication that you need to go in there and fix it, categorize it. And then you've got your undeposited funds, that's a holding account that is gonna be in place so that you can then group your cash into the checking account in the format that makes most sense. Then you've got your fixed assets which include depreciable assets, the fixed assets and the depreciation accounts. Now these, when you first set up QuickBooks online, they often give you a whole bunch of these accounts and you wanna be careful about them because usually you're gonna have to track depreciation related to them and you gotta do it at least on a tax-based system. Oftentimes you're gonna use tax software to do that or get help from your accounting firm to provide the reports. So you might wanna adjust your assets, your fixed assets to line up to the same grouping as your tax software. So that's something I would recommend setting up and understanding before you start using those accounts with your accountant. Account payable has another special need which is to track the payables by a vendor. That's why it has its own account category. The credit cards have their own account category because you can connect them to the bank feeds, therefore they have their own type. And then we've got the other current liabilities, all other accounts that don't have a special category. The, this account represents sales tax. So those would be set up as you set up your sales tax information into the system. Loan payable, other current liabilities here and then would be like a note, for example, current portion and then the long-term portion, notes payable, long-term, typically notes that are gonna be due after a year. And then you got the equity section which is often confusing when you first set up the QuickBooks system because again, I think QuickBooks Online gives you like a whole lot of stuff in the equity section because like I say, they don't really customize as you do the data input towards what you put on the data input, like industry and by what kind of business you're in, they just give you a whole bunch of equity accounts that you could use then. So you wanna pick the ones that are applicable and then possibly make inactive or delete the ones that aren't applicable. So for example, equity represents the owner's claim in essence to the assets of the business as opposed to the third-party liability claims but it'll differ in terms of the names by what kind of business you're in. So first of all, you got opening balance equity which will be there no matter what kind of business you're in but it's not something that you really want to be reporting on. It's just there as a holding account or an account to make or allow QuickBooks to be in balance when it needs to put in like the opening balances. So we'll talk more about that when we do the first setup of a company file, it's kind of a balancing account. So it's a, and then you got the retained earnings. Retained earnings is only a term that you would use if it were a corporation. So if in general, right? So if it was a sole proprietorship, we would call that kind of account the owner's equity account or a capital account. If it was a partnership, you can have multiple kind of capital accounts. So this retained earnings account, whatever you call it, it's special because, and you can tell that because it's a balance sheet account that doesn't have a register. That's how you kind of know that this is the account that the system is closing out into. The closing entries will be done automatically into this account. So you might want to change the name of it but to whatever would be appropriate for that account to be closed out into. If it was a corporation retained earnings would be appropriate. If it was a sole proprietorship, you might want to change it to owner's equity because it would just be one person owning the company file. If it's a partnership, it gets a little bit more confusing because now you've got multiple partners and you have to manage the capital accounts in accordance with the partnership agreement. So you might have one account that it rolls into and then you got to allocate it to the partnership accounts in accordance with partnership agreement, which is kind of annoying, but it's a partnership. So, and then you could have a draws in here and you might have dividends and whatnot. So again, it'll differ depending on the industry. We'll talk more about that when we get to the balance sheet. Then you got your income statement accounts. Usually you don't have a lot of income type statement accounts. This is your income account revenue account, another term that you might call it because you usually do one or two things. You have a lot of expense accounts, less income accounts, but because this is a job cost system, they have a lot of them. Notice down here, this represents that it's a sub account, which means that when I go to the income statement, that's where you've got this little sub arrow down here, which doesn't represent a financial category or a QuickBooks separate account type, but rather a sub account. So that's how you create those sub accounts. So if I scroll all the way down, what happened? I was in here, if I go into this one and edit it, you can see it's a sub account. That's how you create those other sub accounts. Now note that the QuickBooks general chart of accounts tends to kind of like having a lot of sub accounts and it's kind of up to you as to whether many people really like having a lot of sub accounts and many people don't like having a lot of sub accounts. And so you're gonna have to go in through there and customize it. Your cost of goods sold is gonna be there in its own category. If you sell inventory, that's when you would use it. Otherwise, you know, you might not need it. And then your expenses. Now the expenses is gonna be the category with the most stuff in it usually. And it's the area that most differs from company to company. So this is where you're gonna have to spend some time and start to think if you're setting up a new company file, what kind of expense accounts do you want and you could go through here and see the kind of expense accounts that the online system sets up in general often has a lot of sub accounts, which could be good, could be bad, you might go through it and say, hey, I don't want sub accounts for like legal and professional possibly. Maybe you just want an accounting and a lawyer account and have them separate and not be sub accounts. So maybe you want them under the sub accounts. So it really can be customized to your particular preferences. And same for the maintenance here. So maintenance and repairs, I would call it repairs and maintenance, right? Maintenance and repair sounds backwards to me. I don't know why no one says that, dude. It doesn't roll off the tongue that way. But in any case, then you've got your sub accounts in here. Maybe you just want repairs and maintenance. So there's a lot of that sub account stuff and detail in the default chart of accounts that's typically given to you when you first set up a company file. So you gotta go through it. Utilities is the same kind of thing and determine what you actually want. Now, remember how I would do that would typically be that for most people I would recommend you use their default chart of accounts to the extent that you can making adjustments possibly to like the pre-shable assets and stuff upfront and whatnot, but with the expense accounts, try to use what they have in general. And then as you're doing the data input, you wanna think, do I think there's a better account? Would I like to change the name? Maybe I like the account, but I don't like maintenance and repairs. I want it to be repairs and maintenance. Well, then I would go into here and just change the name of it. I would go into here and edit it, change the name. I'm not gonna make another account called repairs and maintenance and have one called maintenance and repaired because then it's likely that I'm gonna post stuff to both of those and kind of mess things up. So, or if I do that, I wanna make sure I delete the other one, right? And then if there's no account at all that relates to what I want because I have a special account that I want in my industry, then I would add the new account as we go. And then after doing like a month or two at least of data input, then you can go back in here and look at all of these accounts and see which ones are you not using, which ones are inactive and then make them possibly inactive so that the data input in the future will be easier. And you can also then go into these items and say which of these items do I like being reported over here in the income statement as sub accounts and which of these maybe are too tedious to be sub accounts and just adjust the sub accounts. And you can do that easily like if this was a sub account, if I had something posted to it and I edit it and I just remove the sub account, not a problem. It's not gonna throw you out of balance or anything like that. You can remove the sub account and then over here it'll show the difference so you should be okay to do that. We'll practice some of that stuff more in the second half of the course when we do data input or another course or in the second half of the course and when we do bank feeds we'll actually create, we'll basically delete most of the accounts that we can and we'll practice actually creating this whole thing, adding new accounts, customizing the accounts as we go as we enter the data with the use of the bank feed. So that'll be exciting.