How to Set Up Chart of Accounts in Quickbooks [Solved]

How to Set Up  Chart of Accounts in Quickbooks

Setting Up Your Chart of Accounts in QuickBooks Select & Design the Right QuickBooks Chart of Accounts

Quickbooks LogoSo many companies fail to set up their charts of accounts correctly in QuickBooks. All too often as a certified public accountant I have observed charts of accountants resembling a collage of accounts in helter skelter format without any logical order, containing duplicate if not triplicate accounts, inconsistent protocols, and even inappropriate, if not undecipherable, names. When the outside accountant receives this mess at tax time, the trial balance necessitates countless hours of reclassifications and groupings to mesh and coordinate the amounts with the classifications required on tax returns and financial statements. At an average public accounting fee of $150 per hour, clients bear the costs of needless expensive clean ups, often tacking on an additional $500 per year to their annual accounting bills.

There is no excuse for not having a chart of accounts set up in a format compatible with that as it is reported on one’s tax return as well as one’s financial statement. Once set up, a simple click in QuickBooks prints a readable and well-organized financial report for internal management, bankers, other creditors, bonding companies, shareholders, et al. And with some mapping to an Intuit tax software program, the client’s trial balance amounts can be exported to the company’s tax return by the tax preparer with another click of the mouse.

Consequently, in order to minimize costs associated with the preparation of tax returns and interim and year-end financial reports by an outside accountant, businesses would be well advised to adopt account names, account groupings, and an overall format predicated upon their requisite tax returns. This format need not be inconsistent with that used for internal and external financial reporting, since subaccounts would provide any necessary detail required by management and interested outside parties; while a simple click under report modification in QuickBooks re-arranges the expense accounts in alphabetical order, often the desired presentation for banks.

QuickBooks makes it easy for you to set up a chart of accounts. Follow its “wizard” in initially setting up your company in QuickBooks, selecting the appropriate legal form and industry. If you are unable to find your precise industry, select the industry closest to yours; or if you are adventurous, start from scratch. No need to fear: virtually everything can be undone, which is one of the reasons QuickBooks is so very popular; it is all so forgiving.

If you have already started using QuickBooks and wish to modify the chart of accounts for your business, select Company > Chart of Accounts > Account. To add an account, pick New; QuickBooks even includes a “suggestion box” on the right-hand side of the window, listing common accounts under each account type. To change an account name or type, pick Edit, and simply type in the new name or select a different account type. If you have duplicate accounts, Edit the duplicate, and in Account Name, enter the name of the account you wish to retain: all of the information in the previously separate accounts become merged into the one remaining account. As a precaution, before undertaking a merging of accounts, it would be prudent to make a copy of your QuickBooks file in the event that you discovered later that a merger was inappropriate.

Always use account numbers. You have to enable this feature by following the path, Edit > Preferences > Accounting > Company Preferences, and then selecting “Use account numbers”. This is essential for allowing maximum freedom of organization and arrangement of your account format in your financial reports. By using numbers, you can arrange reports into meaningful sections, groups, or categories. By default, QuickBooks orders all financial accounts in financial reports in numerical order. If you wish to change the account order in the report, just change the account’s number. Such flexibility is not allowed just using account names. Furthermore, it is a simple process to rearrange these same reports in alphabetical order, if and when desired: simply select Modify Report > Display > Sort in Ascending order/Descending order.

You are allowed up to 7 digits for an account number in QuickBooks: a minimum of 5 is recommended if you require numerous accounts and subaccounts. Although individual businesses will warrant a customized numbering scheme for their accounts and account groupings, I often use the following one utilizing 5 digits for a typical manufacturing and construction company:
Assets: 10000 through 19999

Current Assets: 10000 – 14999

Cash: 10000 – 10999
Receivables: 11000 – 11999
Inventory: 12000 – 12999
Other Current Assets: 13000 – 14999

Noncurrent Assets: 15000 – 19999

Fixed Assets: 15000 – 15999
Other Assets: 16000 – 19999

Liabilities: 20000 – 29999

Current Liabilities: 20000 – 25999

Accounts Payable: 20000 – 20499
Credit Cards: 20500 – 20999
Other Current Liabilities: 21000 – 25999
Accrued Expenses: 21000 – 21999
Payroll Liabilities: 22000 – 22999
Debt, Current Portion: 23000 – 23999
Capitalized Leases, Current Portion: 24000 – 24999
Other: 25000 – 25999

Noncurrent Liabilities: 26000 – 29999

Debt, Noncurrent Portion: 26000 – 26999
Capitalized Leases, Noncurrent Portion: 27000 – 27999
Other: 28000 – 29999

Equity: 30000 – 39999

Capital Stock: 30000 – 30999
Retained Earnings: 39000 – 39999

Revenue: 40000 – 49999

Cost of Goods Sold: 50000 – 59999

Materials: 50000 – 50999
Labor: 51000 – 51999
Subcontractors: 52000 – 52999
Equipment: 53000 – 53999
Other Direct Costs: 54000 – 59999

Expenses: 60000 – 89999

Selling Expenses: 60000 – 69999
General and Administrative Expenses: 70000 – 89999

Other Income (Expenses): 90000 – 99999

Of course, there would be an endless variety of accounts under all of the above categories particularly under Expenses: Selling as well as General and Administrative. If there were an insufficient number of accounts required under Selling, you may omit the distinction and lump all under Expenses. If you apply overhead to your jobs reported in Cost of Goods Sold at a date later than posting, you may even wish to add an Overhead grouping under Expenses for those amounts to be allocated to jobs. I find this especially convenient and time-saving, obviating a frantic search through a mass of expense accounts containing thousands of transactions.

Subaccounts are a critical feature of structuring your reports in QuickBooks, too. On a tax return, rather than present totals separately for electricity, natural gas, and water, it’s more efficient to combine their amounts under a heading, “utilities”. So it is true for the various kinds of insurance, professional services, taxes, etc. Also, by grouping such related accounts in QuickBooks, its reports appear more organized and readable, especially since QuickBooks provides subtotals for each grouping. Creating a subaccount is easy in QuickBooks. Follow Company > Chart of Accounts, highlight the desired subaccount, select Account > Edit Account, click “Subaccount of” and select its parent account.

Setting up a chart of accounts is not an overwhelming task in QuickBooks. A wizard is provided, industry templates are included, and example accounts are suggested. Accounts easily can be created, edited, and merged with a matter of clicks. If you need a starting point, grab your tax return or financial statement compiled by your outside accountant, and enter the accounts found therein, decomposing summary accounts into subaccounts in QuickBooks. And always remember to backup your company’s QuickBooks’ file before merging two accounts in the event you wish to reverse the process. By creating a more organized and efficient chart of accounts, you will not only save on accounting fees but you will improve your accounting reporting in-house as well.

 

Credit: http://www.cpa-connecticut.com/quickbooks-chart-of-accounts.html

 

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