Accounting Basics: The Chart of Accounts
Many of my QuickBooks training sessions begin with an overview of some accounting basics. Without an understanding of the basics mistakes tend to creep into the setup. And that leads to incorrect financial reports and decisions based on bad information.
Here’s what you need to know about the QuickBooks Chart of Accounts
Access the chart of accounts using the shortcut Ctl+A or from the lists menu.
Types of Accounts
Asset Accounts- These are things the business owns or possesses. Examples are cash on hand, undeposited funds, accounts receivable, inventory, equipment and fixtures. Assets are usually divided between Current Assets (cash or easily converted to cash) and Fixed Assets (Equipment, vehicles, property).
Liability Accounts - These are things that the business owes. Accounts payable, credit cards, business loans and lines of credit, sales tax and payroll taxes payable.
Equity accounts- Owners’ accounts. Money that the owners invest in or withdrawal from the business.
Income Accounts - This is probably the easiest to understand. Income = revenue = money coming in.
Cost of Goods Sold - Expenses related to the selling of goods. Cost of sold inventory, cost of labor in producing goods or services, job costs.
Expense Accounts- These are non-job related costs. Rent, utilities, insurance, etc.
Other Income - Used to track income outside normal business activity.
Other Expenses - Used to track expenses outside normal business activity.
It is important to understand the chart of accounts when setting up items and other preferences in QuickBooks. For help customizing the chart of accounts for your business see our support options here.
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