 QuickBooks Desktop 2023. Chart of Accounts. Let's get into it within to it. QuickBooks Desktop 2023. 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. Here we are in QuickBooks Desktop Sample Rock Castle construction practice file provided by QuickBooks going through the setup process we do every time maximizing the homepage to the gray area going to the reports drop down company and financial P&L profit and loss with the range change 010123124 January to December that is customizing the reports on the fonts and numbers changing the font to 12. Okay, yes please and okay going to the reports drop down again company and financial this time the big balance sheet changing the date 123124 customizing the reports fonts and numbers to change it to 12. Okay, yes and okay so that's the setup process we do every time back to the homepage we're now focusing in on the chart of accounts which can be found in the homepage in the company area but most of the time I get there through the lists remember that the lists is going to be a category name that you might hear used in QuickBooks circles for bookkeepers and the primary list is going to be that chart of accounts also before we get in there just note that the chart of accounts is something that we have to lay down it's going to be the baseline on which all financial transactions will be based remembering that these forms are the tools used to make the data input for the financial transactions as easy as possible from an accounting data input standpoint the financial transactions are those that have at least two accounts that are affected on the financial statements the balance sheet and the income statement so we've seen the impact of these forms on the financial statements balance sheet and income statement and of course the balance sheet and the income statement if I open one up are made up of accounts so we have to have those accounts first set down before we can properly set up any items that are being used in the forms that will be linking to these accounts recording at least two accounts being impacted with every financial transaction okay so knowing that we're going to go into the list drop down go into that chart of accounts now when you first set up your quickbooks file typically quickbooks desktop has a pretty well in depth kind of ask or question and answer process to determine which kind of industry that you are in which we'll take a look at in the second half of the course and it'll allow you then to pick a chart of accounts that's kind of been customized for that particular type of industry with basically the default kind of accounts for that particular industry so when you first set up your quickbooks file if you're starting a new company file and you don't have a chart of accounts from a prior company file then you may want to select the proper industry and then quickbooks will feed into you a chart of accounts that is kind of custom to that industry and then you can basically go from there narrowing the accounts down to only those accounts that you need noting that even when you do that usually the chart of accounts is possibly going to be larger than you need it or it might not have some special accounts that you particularly have or you might be in an industry where you don't have the same chart of accounts no standard industry out there might be a little bit more unusual of an industry or you might just not want to create your own chart of accounts so that you can put your own names into the accounts noting that there's no really right and wrong name for an account there's some more traditional names for the accounts and you probably want a lot of your accounts to line up with those traditional names but especially when we get down to the expense items down below we could have some expense items that are kind of unique to us certain things that we want to break out that possibly other companies wouldn't because they're significant costs to us whereas they might not be for other companies and so on and so we might want to build our own chart of accounts there's also a lot of specialization and a lot of kind of leeway for what you think is the best practices for building things like sub accounts as you can see here sub accounts are great because they they give you more detail but they also add a lot more complication making your statements like your income statement in this case a lot longer some people really like sub accounts some people don't like them as much also if you use something like class tracking it can it can affect what kind of account stretch strategy or structure in sub accounts that you might be setting up so we'll go through the setup process in future presentations but in essence you're going to have your chart of accounts which you basically want to be thinking of as ordered not by name by type you want to think about it as in order by type you could change it and order it by the name here so if you want to if you want to search for something like this way and and select by name you can but usually by default and probably what you want to keep it as by default would be the ordering as type when you think of the ordering as type notice that you could think of it as in essence the balance sheet accounts on top of the income statement accounts so in other words if i was to list this out balance sheet accounts are going to be here where basically you have the accounting equation on the balance sheet where you have assets liabilities and equity right and then under the assets you've got specific kinds of assets you've got let's let's make this all small and then and then break it out so it'll be kind of cool like that right we'll break it out and so we can we can reveal everything that'll be fun so i'm gonna i'm going to minimize all the carrots so under the assets you've got the current assets so and then under the current assets you've got the checking account stuff which has to be specialized for particular reasons we'll talk about in a second and then you got the accounts receivable a current asset other current assets and then the fixed assets and then that's other assets and then finally the total assets and then you've got the liabilities accounts uh so these are the fixed assets other assets total assets liabilities accounts and then under that you got the current liabilities the accounts payable credit card and so on and then you've got the equity accounts and then you got the total liabilities If you go to the profit and loss, then you've got the income accounts, you've got the cost of good sold accounts, and you've got your expense accounts. That's the order that you want to think about the chart of accounts as you can also see that in another form, reports, drop down, accounting and taxes, that being the trial balance. So if I go to the trial balance from 010124, 123124, we'll start to use this report later. We'll optimize it, fonts and numbers, bring it up to 12. Because this report can be nice to look at one report that has all the accounts that are active instead of opening up the balance sheet and income statement. It does have debits and credits, but even if you're not really familiar with those, it can give you a quick look at all the activity and all of your accounts balance sheet on top of the income statement formatted in a similar way as the chart of accounts. So let's go through the accounts here and just the account types to get a feel for them. The checking account, notice this is a current asset type of account, but specifically under the type of a bank account. From a financial accounting perspective, when we pull this over to the balance sheet, we typically think of it as just a current asset account, but we want to make it specifically into a bank account for QuickBooks because it has special needs for QuickBooks, one of those being it needs to be reconciled, it's got a register related to it, and it could be connected to bank feeds. So these are the accounts that will be connected to bank feeds or one of them as well as the credit card accounts that we'll see in the bank feeds section. That's why they have to break it out separately, noting that that breakout, that subcategory will be pulled over into say the balance sheet as a subcategory here. Again, that's not really normal for financial accounting standpoint. We don't need a subcategory, but it's breaking out the subcategory based on account type. The account type is necessary within QuickBooks so that we can have special uses of special accounts like the bank account. Accounts receivable has its own type. Again, it's kind of weird when you pull it into the balance sheet because then it's under a subcategory of accounts receivable. Why do I need another line item when it's got just one thing in it, which usually it only has one thing in it unless you've got an allowance account? That's because, again, QuickBooks needs another account in order for the special needs of accounts receivable to be there. You usually only have one when you set up new accounts. You don't usually make other accounts receivables. The special need of the accounts receivable is that we want to also be able to track it with a subledger called, well, a subledger tracking by customer. We have to assign customers every time we post something to the accounts receivable so that QuickBooks can create a subledger breaking out the receivables by customer. Then we've got the other current assets. This is everything else that doesn't have a special need, which is under the current assets category. Then we've got the fixed assets. These are property, plants, and equipment. You might call them depreciable assets. When you buy large pieces of equipment or a building or something like that, a vehicle, then even if paying cash, you can't expense it. You've got to put it on the books as an asset. Then we've got the other assets. These are going to be the long-term assets that don't fall into one of those two, like the security deposit. Then we've got the accounts payable. We are now on the liabilities side of things. Normally, for financial accounting, you only have current liabilities. You'll note that this falls under liabilities over here when you see it. It's under current liabilities. Then they have another category, these other categories, under the current liabilities, which isn't needed for financial accounting reporting on the balance sheet, but QuickBooks has given you that breakout by account type. There's only one accounts payable account, like there only being one accounts receivable account, because it has a special need of being able to track the payables by not just transaction by vendor, so we need that subledger. That's why it's a special account. Then we've got the credit card accounts. The reason those are special accounts is because the credit card accounts are going to go through a bank, a financial institution, similar to the bank accounts, and therefore we have the opportunity to connect them to the bank feeds, so they need their own special account category here. Then everything else that falls onto the other current asset liabilities that doesn't have a special need will be posted here. These are all the other accounts that fall into that category. Then we've got the long-term liabilities. These are things that from a financial perspective, we're not going to pay off for over a year, so a long-term loan, for example, noting that most loans that we think about are paid in installments, like monthly installments, so we're going to have an issue we'll talk about when we start to think about how to record this stuff in that we might have a loan that has a short-term portion to it because we're going to pay something in the next 12 months and a long-term portion because we're going to be paying for it for the next 10 years. We're going to have to deal with that kind of issue, but these are the long-term component for financial statement reporting. We've got the equity accounts representing the kind of, when you look at the balance sheet, you've got assets, liabilities, and equity. If you think about this in terms of assets being what the company has and liabilities being what we owe to others for, then we've got the equity, which is kind of our claim to the assets. So assets minus liabilities equals equities, kind of like the owner's portion of the book value of the company. We'll talk more about that when we get to the balance sheet. Then you've got to break out within equity according to what kind of company we are in. So that will be dependent on the structure in essence, meaning are we a sole proprietorship in which case equity is just one hour owner's equity, just us? Are we a partnership in which case we're going to have to break out? That's probably the most complicated component of equity. It's a complex partnership with heads of multiple owners that are pulling money in and out because now we have to assign the ownership of the company to the partners in accordance with the partnership agreement adds a level of complexity or it could be a corporation and a corporation, then we've got the capital stock and the retained earnings. Corporations are actually easier in some ways than partnerships from the equity section perspective because now we can just say, okay, the equity is just going to be broken out into units of ownership into standardized units. And then how much ownership somebody has in the company will be dependent on how many units they have of shares, for example. So then we're going to go back then to the chart of accounts. The equity section and then we've got the income accounts. Income accounts represent the income statement. So now we're on the profit and loss income accounts. So we'll say income accounts. It's kind of minimizes really all we have on the profit loss really is income minus expenses. But then we have some pit stops along the way, some special accounts that we might be using such as cost of goods sold. It being so important that we want to put it in there separately to get to a subcategory of gross profit, everything else being put into the other expenses, normal expenses. And then we might have other income expenses. So let's go through as we go. The income accounts are up top. Now notice that this particular company has a lot of income accounts because it's in a construction business, so it's a little bit special. But many companies will only have like one or two income accounts. So you don't want to set up a whole bunch of them. Typically, because you only do one thing to generate income, you don't want an income account, for example, for every customer that you have. That's not typically what you want to do because you could break out subreports, breaking out income by customer. You don't want an income account for every kind of thing that you do, every service or inventory item you provide. Because again, you can break out subcategories, subreports for that. So you want to keep that in mind. We'll talk more about that later. We've got the cost of goods sold, which would only be there if you sell inventory. This is the cost of us selling the inventory. That's going to be a major expense, so much a major expense that we put it in a subcategory on the income statement to get to this profit and loss subcategory before everything else then is going to be recorded in expenses. Note that the expenses by far is going to be the largest category for most every type of business, meaning we're going to have more types of accounts under the expenses than any other category. That also means that you have the biggest job as the bookkeeper to properly organize the expenses, trying to have a nice middle ground between having a lot of information to give us more detail and having too much information, which is going to clutter things up, meaning you don't want to have too many accounts. Meaning if you put an account for every separate kind of transactions you have and you've got accounts with like a dollar in it and so on, then you're going to have a really long income statement, which is going to have a lot of detail, but too much detail to really grasp. If you don't have enough expenses, like you just put everything into expense account, one expense account, then you're not going to have a lot of detail and it's too little expense, although your income statement will look very simple in that case. So also note, this is also where the tools that can be used to organize are going to be having their most biggest effect typically. For example, the subaccounts. So a subaccount is going to be an account that falls under this account name up top and that allows you to have a grouping category. So when we saw the profit and loss, for example, notice that the expense account has a drop down as it being an expense account by the account type, but this subcategory was put there by us making a parent account and then the subaccounts. Notice how much more long that makes the income statement, because now you've got a drop down, this drop down, and then you've got the subcategory in a total. So that if you do a lot of subaccounts, it's going to add to the length of the income statement, although you can minimize the subaccounts and make the income statement a lot shorter in that way and present it that way. So some people really like that. Some people find that people go a little bit overboard on the subaccounts and it might be useful for particular situations. It can also, like you might do it by locations if you have different locations and stuff. There's a bunch of different reasons why you might have the subaccounts. It also helps you to order things a little bit more because most of the time if you don't have the numbers on, the account numbers, then you don't have a lot of control as much control over the ordering of the expense accounts within the reports. So one way you can order them a little bit more easily is by using the subaccounts so that you can order them without the account numbers. We'll talk about the account numbers in a bit. So then you've got your expense accounts, huge categories of expense accounts, and then at the bottom you've got the other income and expenses. Now other income and expenses are things that typically you're going to say, hey look on my profit and loss report, these are things that aren't part of my normal operations. They're not part of normal income. Possibly like interest is not normal operation. You might think of it as because you're not in the business of a bank or something like that, but you might have earned some interest income or you might have incurred some interest expenses. So maybe you don't want to put them down here in the ordinary income because I would like to see my income not including those special other items that aren't part of my normal operations and then add those other items down here at the bottom so that I can have my proper net income. But I also have a subcategory of my net income from normal operations versus these other kind of things that aren't what I primarily think of my business as doing to get to that bottom line number. So that's the general idea with the chart of accounts. And also just realized that you can set up your chart of accounts first, but you can also kind of add to the chart of accounts as you go. So when you enter transactions, such as if you have bank feeds on, oftentimes you'll be entering transactions as they come through and usually adding expense accounts because most of the transactions will be outflows from the checking account that you'll be applying expense accounts to. You want to be careful and consistent with the accounts that you're using so that you don't clutter the accounts by having five telephone accounts or something like that. Consistency is going to be important. So for example, if you went to the home page and you entered like a check and you didn't have the account set up, you could then go here as you go and set up an account, add a new account as you go. But before you do that, you always want to first think, do I already have an account in place? Did I pay this vendor last time? Notice if I pick a vendor, it'll pull up the prior account depending on the settings that you have, which we'll talk about later. But if we charged it to supplies last time, then we better have a good reason not to charge it to supplies again if we're going to choose something different because consistency is important. So if you're taking over a bookkeeping job from somebody else, oftentimes you have an urge to want to change everything they did in the past and it might be valid to do that. But you first want to say, can I be consistent? How can I make any changes I'm going to do in as consistent a way as I can so I can compare prior data to current data? Closing that back out. So then we can go to the chart of accounts. Now just note that the account numbers allow you to have more flexibility. By default, the account numbers are typically turned off and that's because the account numbers can, although they add more capacity to basically put your accounts in order, they can be confusing and if you don't put the account numbers in there correctly, they can limit you in terms of trying to add new accounts because you didn't space out the account numbers properly and or they can just be wrong or look incorrect because the order of them does not line up to the types. In other words, even if you put account numbers in place and say, let's say you made this account number 5,000 and you made this account number 6,000 or you made this account number 5,000 and this account number 4,000, it's going to show, it's not going to order first by the account number, it's going to order first by type. So your account numbers can get out of whack if you don't know how to enter the account numbers. The way to turn the account numbers on and off is to go to edit preferences and then you can go to the accounting up top company preferences and then we've got the account numbers here. I believe the account numbers are off by default. They always have been. We'll check it out again when we create a new company file. But if you turn the account numbers on, make sure you have an understanding of how account numbers work. I think we have a course just on account numbers, how to set them up if you want to get into that in more detail because they can give you more flexibility, more ability to order, for example, your expense accounts and that can be quite useful because like when you add new accounts in the future, the new accounts are going to add somewhere within the account category based on alphabetical order, which makes things a little bit confusing for sometimes for your accountant and stuff like that. So you could add the account number. So that's the general idea with the chart of accounts and we'll build the chart of accounts in when we start to enter transactions in the second half of the course.