In this article, we will talk about the Chart Of Accounts in QuickBooks. But we need to understand what the Chart of Accounts is before we move further. In QuickBooks Chart Of Accounts, we make a record of all the assets, liability, expenses, equity, the income of the company. This is something that is done on an everyday basis. We easily make a record only by using this QuickBooks Chart of Accounts software. In other words, the software simplifies our search for finding the convertibility of assets by categorizing them accordingly.
With the following example, the working of the software can be easily explained.
Considering have your own company and you hire a person who makes a record of your assets, handles your expenses, and so on. But on the other hand, there is the availability of something that does all those things that you require and also saves your time along with other provided benefits as well. Chart Of Accounts is that tool.
Create Chart of Accounts in QuickBooks Online
If you are a QuickBooks Online user and want to create or open a chart of accounts then follow the below procedure;
- First, click on the Settings ⚙ icon.
- Then, select Chart of Accounts from the drop-down menu.
Here, follow the video to get the visual guide for setting up a chart of accounts in QuickBooks Online.
Create Chart of Accounts in QuickBooks Desktop
If you are a QuickBooks Desktop user and want to create or open a chart of accounts then follow the below procedure;
- Firstly, select Chart of Accounts from the following QB menu.
- For an Accountant version, items are Company, Lists, or Accountant.
Chart of Accounts Types
There are six types of accounts for tracking financial business activities. Below is the list of those account numbers and names relevant to the company.
In the past, the company invests in goods or products for the use of the company. Those past investments tend to become an asset of the company as it can help the company’s future. Additionally, it makes us economically strong in the market. An asset represents an economic resource for a company or represents access that other individuals or firms do not have. In other words, we can say that QB put these assets into a category and in an order in which we can tell how convertible assets they are. It means how quickly you can turn your assets into cash.
Categorized Assets And Discussing Them In Detail:
- Current Assets: This account type has short-term economic resources that expect to convert into cash within one year. Current assets are cash and cash equivalents, accounts receivable, inventory, and various prepaid expenses.
- Fixed Assets: These are long term resources such as plants, buildings, firms. The debug for the loss of long term of the fixed assets had a periodic charge called depreciation. This may, or may not reflect the loss of earning the power of fixed assets.
- Financial Assets: These assets represent investments in the assets and securities of other institutions. The value of financial assets depends on how the investment has to be categorized and the motive behind it.
- Intangible Assets: The asset that does not have any physically present is called intangible assets. E.g. Patents, copyright, trademark, goodwill, etc.
However, Expenses Account is the reimbursement of money spent by employees of the company for the company.
Here is some common example of Expenses Account such as:
- Management expenses
- Debt redemption expenses
- Bad debt expenses
- Cost of goods sold
- Depreciation expenses
- Income tax expenses
- Insurance expenses
- Interest expenses
- Loss on disposal of firm assets
- Maintenance expenses
- Rent expenses
- Salaries of the employees
- Wages expenses
- Selling and purchasing expenses
- Supplies expenses and utility expenses
Above all are the common example of the Expenses Account.
Other Useful Resources:
Download And Update Bank Transactions In QuickBooks
Fix QuickBooks Error Code 6190 & 816 (The File ext. issue)
Liabilities are the duties or obligations that you owe a body. They can be either limited or unlimited. Liabilities are settled with the passage of time through transfers of money, products, and services. They are written on the right side of the balance sheet.
E.g. Loans, account payables, mortgage, deferred revenues, accrued expenses.
Equity is “shareholder equality“. In short, we can say that it represents the amount of money that might return to the shareholder when all the assets turn into cash, and all the debt of the company gets paid off. You can find it on the balance sheet of the company. It is the most common financial metrics analyzed by the analysts for observing the financial health of the company.
Cost of Goods Sold
Also known as the cost of sales, it is the cost that is directly proportionate to the goods and services sold by the company. This amount is the cost of the raw material for creating the goods and labor costs to produce the goods or services to the customer. It does not include indirect expenses like distribution costs and sales force costs.
The formula for calculating the COGS:
COGS= Beginning Inventory + P – Ending Inventory
P= Purchases during the given period
Inventory: It refers to the sold and sales shown in the income statement under the COGS.
Beginning Inventory: It refers to the inventory that remains from the previous year means the inventory which was not sold last year.
Importance of COGS:
It is a very important metric for the financial statement. Because it is subtracted from the company’s revenue to calculate the gross profit of the company. Gross profit is an important facet of the company. It gives an insight into how well-organized the company is and how it is managing its labor, and supplies in the productions.
Income Accounts refer to the money that is earned from the sale of the products or services. The company might have one account or more than one account for the income source, depending on the need for financial analysis. Income from the interests is also an example of another income source. A debit from the income reduced the amount the business has earned. But a credit from the income also increased the amount the business has earned. The income account appears on the business profit and loss account.
I hope the article was of help and provided solutions to your queries. However, if you have doubts or require more information, you can get details on this topic from our QuickBooks ProAdvisor at the toll-free number +1-844-405-0904. Our team of experts will be happy to help you and save your time.