QuickBooks Online 2021 chart of accounts. Let’s get into it with Intuit QuickBooks Online 2021. Here we are in our free test drive file, you can get to the test drive file by searching in your favorite browser browser for QuickBooks Online test drive the Craig’s design and landscaping services test drive file is what we are working with, we’re going to go into the chart of accounts. A couple ways we can go to get in there we saw last time Chart of Accounts is one of our major lists.
So you might hear it from QuickBooks terminology as something that would be a type of list, we saw that we can get two lists in general with the cog up top, and then under the lists item, we can go to all lists, there is our chart of accounts more commonly and more easily to access, the chart of accounts will typically go to the accounting tab at the bottom, where we’ll then have two tabs up top chart of accounts and reconcile, we’re gonna go to the Chart of Accounts tab here, you may have to hit a green item in the test drive file in order to observe the chart of accounts.
The chart of accounts is going to be a really important item here and it’s often one that’s going to be set up at least by default, meaning you’ll have some default accounts being set up when you set up your QuickBooks file. And it’s going to be used every time you enter a transaction. Because the transactions if there are financial transactions will have an impact on you know, some account, every transaction has at least two accounts affected. In other words, if we go to this plus button up top, everything that we looked at in terms of the forms here for customers, vendors, employees with the exception of the purchase order will typically have an effect on the chart of accounts in that it’ll affect at least two accounts that will be there.
So that means that the chart of accounts are something that we have to set up before, we can basically do any of the the accounting cycles for the accounts receivable cycle payable cycle, or the employees. Therefore it’s one of those things that if you’re going into a company file that has already been in use, or you’re working at a company, you may not see the setup of the chart of accounts, but rather you’re going right into the data input. And the data input has already been set up the things that had to be done. To make the data input work well, including setting up a good Chart of Accounts has already been put in place, and therefore the data input should be an easier process.
But if you understand the chart of accounts and how the chart of accounts is set up, and how then we can link the chart of accounts to the data input forms, and then create the financial statements from them, you will become much more valuable in the event that you do need to set up a new company file or adjust the company file or fix errors or detect errors in the company file. going to close this backup, then the chart of accounts can be organized in a couple different ways here you can you can organize it by any of the headers. So if I wanted to organize it by name,
I can do this I can I can adjust it by name, I can adjust it by type. When I say type, we mean account type. And this is the item that we have to get most familiar with. And then we can adjust it by the detail item here or we can’t adjust it by the detail item. But then we have the detail item, we have the balance, we have the bank balance and action. Now the default is to keep it adjusted by type. And I’ll explain more as to why that would be the case shortly. Let’s go ahead and open up our two favorite reports. Now that being that the balance sheet report and the income statement, or Profit and Loss report. To do so I’m going to go up top,
I’m going to right click on this tab up top, we’re going to duplicate that tab, I’m going to do it again, I’m going to go back on over here again and right click on it again, and duplicate it again while that other one is thinking. And then I’m going to go back to this first tab, we’re going to go down to the reports down below. Let’s open up our favorite report that being the balance sheet report. So I’m going to open up the balance sheet Report, I’m going to make it for the for 2020.
Because most of our data is in 2020. So I’m going to make it a 101 to zero to 1231 to zero, and then we’re going to run that report. And let’s do the same thing for the income statement. So we’re going to go to the second tab. Our other favorite reports, we’re going to go to the reports on the left hand side, the profit and loss the P and L the income statement, same thing, a 10120 to 1231 to zero and then we’re going to run that report as well. So these these two reports, these accounts that are involved in these reports are going to be designed by or they’re coming from the chart of accounts.
So if we if we go to the balance sheet, first let’s take a look at the balance sheet. And if I was to minimize everything with a with a little triangle here, I’m going to minimize all these items. And then I’ll minimize it all the way up to the assets. I’m going to minimize it from bottom to top bottom, the top bar on the top, like so. So now we have our accounting equation, which is assets equal liabilities plus equity. Now the asset is not an account type, but you know, it’s a general category and then within the assets we have basically The current assets.
And then within the current assets, we have a breakdown of these account types. So that’s why we have the bank account, the accounts receivable here and the other current assets. These are account types. Now if I go back to the chart of accounts, you can see them here, when I create a new account, I’ve got to determine the account type, we have a bank account, we have the accounts receivable account, we have the other current assets.
So we basically order these Chart of Accounts primarily by account type. And the first level of ordering of the chart of accounts you can think of as basically being the balance sheet on top of the income statement. In other words, you can think of it as assets, liabilities and equity. On top of the income statement, if I do the same thing for the income statement, I’m going to minimize everything here, minimize, minimize, and minimize and we’ll minimize this, and this and this, and this, and then the income statement accounts, being income, and then expenses, including cost of goods sold, and then other type of expenses, and other expenses here.
So basically, income and expenses. So you get the balance sheet at its simplest level, assets, liabilities, equity, income, and then expenses. And then if we expand on that, within the assets, we then have the current assets, which include the banking accounts, the accounts receivable and other current assets, if I expand the bank accounts, now we have those accounts in those account types. So this triangle is driven by the fact that there in that account types, so that that triangle is created by the account types. And then down here we have the accounts receivable. In normal financial accounting, the accounts receivable would simply be a current assets.
But from QuickBooks standpoint, there’s different kind of things that need to be done, because it needs a subsidiary ledger of this by customer. Therefore, it needs its own account type, so that QuickBooks can treat it differently than the cash accounts or the bank accounts which need their own account type, because there could be connected to the bank feeds. So they got to be in a different categorization. So QuickBooks can then treat them differently. And then down here, we got the other current assets.
So this would be every other type of asset that doesn’t need any special treatment like a subsidiary ledger, or be linked to a bank account. And so those are going to be lining up over here to my chart of accounts, checking accounts, bank account, bank account, accounts receivable, other current assets type accounts, so all the asset accounts on top, then we have the fixed assets. Going back over fixed assets down here, this is property, plant and equipment, things, things that are going to be depreciable. And land, long lived type of assets are going to be going down here.
Again, they need to be treated a little bit separately, one because they’re long term. So just for financial statement purposes, there’ll be down here on the bottom, because we can’t really use them to pay off our current bills, and to because we’re going to depreciate them, and therefore treat them possibly a little bit differently with regards to the account type, just the functioning of the account as well. Then if we go down to the liabilities and equity, we’ve got the liabilities under the liabilities, we have a similar structure, current liabilities, those are due within basically a year’s time period. And those are going to be broken out.
Now we have the accounts payable, credit cards and other current liabilities similar fashion as the receivables. The accounts payable then are another accounts type. And the accounts payable are going to be driven by the fact that we need a sub ledger again, just like the receivable, this time by who we owe by the vendor. Therefore, in financial accounting, accounts payable is just another current liability really, for reporting purposes. But for QuickBooks, it needs its own account type.
Because those accounts need to be treated differently so that we can have the sub ledger by vendor, then we have the credit cards has a similar function, the credit cards need to be treated differently, because we can attach them to bank feeds in a similar way that we can with a cash accounts and therefore they have to be broken out in their own kind of category and other current liabilities. Even though in financial accounting, they would simply be you know another current liability. And then we’ve got other everything else that doesn’t need a special kind of function down here in other current liabilities. Then we have the long term liabilities.
Well, let’s just see those on the chart of accounts. If I go to the chart of accounts, credit card, accounts payable, other current liabilities, and then all the other current liabilities, then we have the long term liability here long term liability means it’s going to be something due in over a year. So that’s going to have a separate categorization. That’s how it should be in financial accounting here. So that’s why we need that long term.
And then equity represents basically owners investments. So if it’s a sole proprietorship, well, they still use the similar terms here we got retained earnings, which is more of like a corporate type of term. But in any case, this is basically the owners investment in it. And then we have the opening opening Balance equity, we’ll talk more about opening balance equity, when we set up the new company file, and the net income is not really a balance sheet account, but they’re trying to link the balance sheet to the income statement.
We’ll talk more about that when we get to the reports. But notice that this net income is not on the chart of accounts, we’ve got the equity section here, net income is a calculation on the bottom of the income statement, it’s not part of the chart of accounts, it’s a subtotal, so that that net, and then in that net income flows into the income statement. So now if we look at the chart of accounts, we got the balance sheet accounts on top of the income statement accounts, income statement accounts, we have this category of income. So we have design, income, and all these different incomes for this particular company.
Usually, there’s not a whole lot of income kind of line items, because you know, we only do a couple things. But this is like a construction type of company or landscaping. So they have more income categorizations here. So we have the different income items, those then are going to be here. So these they’re all set up as income. Now you’ll note we had some extra triangles, because because this is income, this is income, this is income, what’s the deal with this indentation, type of activity. So if you go back to to the to the income statement, notice this triangle right here is driven by the fact that it’s a different category.
And then these items down here are still the same category of income, but they have their own triangle to collapse and expand, because we set them up as sub accounts. So that’s a way that we can add another level of detail of expansion. And that’s going to be with the use of sub accounts. So the two triangles can be a little confusing the one triangle driven by the fact that it’s another, it’s a separate account type. And then these triangles down here are driven by the fact that we created a sub account within the same account type in this case, that being within income.
And then if we go on down, we got the cost of goods sold. These are the costs of the things that we sold, they need their own special account categorization, one because that’s what you do in financial accounting. But two, because the cost of goods sold has a different function, it’s going to be linked to the calculation of inventory, the tracking of inventory, Cost of Goods Sold being, you know, the cost of the things, the inventory that we sell, you will only have cost of goods sold if you sell inventory. If not, you don’t have to worry about cost of goods sold. Gross Profit is a subtotal not a not an account. And then we have all the expense accounts.
So the expense accounts is going to be our main categorization on the income statement. So if I go back to the chart of accounts, income accounts, cost of goods sold, and then expenses is where most of our accounts will be the biggest category for most companies. Because although our expenses hopefully will be less in dollar amount than the revenue, we’ll have a lot more things that we’re paying for therefore more categorization, same kind of thing you see down here where we have expense expense expense, this one sub category subcategory of the auto, so expense expense sub categories.
And so there, there we have that, that’s going to be the basic layout of the chart of accounts. And then down below, you got other income and other expenses. And these are things that aren’t part of ordinary operations. Typically, we want to see them at the bottom of the income statement. So we see them down here on on the income statement.
So you want to you want to start to visualize this chart of accounts, basically as as in order by the account type, and then try to visualize where they’re going to be on the balance sheet and the income statement, thinking of the balance sheet and income statement as its simplest form as assets liability equity balance sheet on top of the income statement, income, and then expenses and then further breaking down once you have that into the categorizations.
Within the those groups, if you wanted to edit one of these accounts, like if I go down to an expense account down below, and then I’m going to go over to the right and I’m going to go to Edit. And then I can see the detail for editing, it’s an expense account, equipment rental equipment rental being the name, this is how you would add the sub account. So if we wanted to add an account, let’s just add an account in a sub account. So let’s say we’re going to add an account in a sub account, you could go to the new up top and import or I’m just gonna say the New button.
And then this is how you set up the account. From here. You can also set up a new account as you do data input transactions, but realize that what you really want to do if you’re setting up an account from scratch, or if you’re taking over another account is first look to see if if the account is there if you have an appropriate account that is there for what you want to use, and try to be consistent with the last thing that happened so that you have that consistency principle in place.
And then if you do not have something, an appropriate account to charge to, then you can make another account as you do data inputs, such as making check forms, expense, forms, invoices, so on. So I’m going to make this these are these are the list of accounts so you can see the same order. These are the account types that we just went over. We got the receivable, other current assets, the bank account, and this one’s special because you could have bank feeds linked to it.
And then the fixed assets, other assets, accounts payable, credit card other current liabilities, long term liabilities, equity, then we’re into the income statement where we have income, other income, Cost of Goods Sold expense and other expense. So I’m going to go to the expense category. And then this is the subcategory, not terribly important, because it doesn’t, you know, really affect a lot of the a lot of the organization that we’re going, we’re going to be sorting by.
But I want you to choose a suitable expense category. So I’m just going to say other business expense. And then I’m going to label up top, I’m going to label up top and then I’m just going to say special expense just so it stands out. So special expense. And then I’m going to make this the parent category. And the next one, I’m going to make a subcategory of it. So I’m going to save it and close it.
And so now we can see if it’s in alphabetical order down here. And we have then the special expense, there it is, let’s add another one, which is going to be a subcategory of it just to see how that sub categorization works. It needs to be in the same category, in this case expenses if it’s going to be a sub category. And then we’re going to say this is other business expense. And this is the sub special expense. And then I’m going to make it a subcategory of the special expense here.
And then if I say save it, and close it, and then scroll down, then that’s how you’re going to get that sub categorization that other indent which will result in another little triangle subtotal calculation on the income statement. Now be careful with your subtotal. Some people really liked them. But they can be a little tedious as well if you do too many of them, because they they make your income statement or your financials a lot longer, because they’re going to have you know, added accounts added line items that are going to be involved. Now if we go back up top again, notice that this is also where I’ll typically go if I’m going into the check register.
So you notice on the right hand side, we have this option to go into the register, as we saw a little bit in prior presentation. So if I go into the register here, we see our standard kind of check register, and we can enter depart, we can enter transactions in here specifically, if we do not have a need for a form. So in other words, if I hit the hamburger over here, and I look at the forms, if I don’t really need an invoice or sales receipt or something like that, but I want to put a deposit in or if I want to put an expense directly into into the register here, then sometimes it’s easier faster to go right to the register, you have your list of transactions here.
So the cheque deposit sales receipt, payment bill, and so on, and so forth. So sometimes it can be a little bit easier to go right to the register and enter transactions directly here, which I’ll usually go into through first go into the chart of accounts. Also note that you have a similar register option for all these other items down below. And people are probably less used to using a register type format for these items. But it can kind of save you from having to do journal entries.
So if you don’t know debits and credits, as well, or you’d rather just think in terms of plus and minus, then the registers can help with fairly basic transactions as transactions get more difficult. With more accounts involved, the debits and credits are the way to go. But if you’re if you’re entering a lot of transactions, you can go into the register here. And we’ll see some examples of these. So for example, if you have a loan that you’re taking out, if there’s something that involves cash, I’ll use the check register.
But if there’s something that basically doesn’t involve cash, like we have our buying fixed asset and we’re buying it on account, then I can go to either the loan account, or I can go to the fixed asset account, that’s something that doesn’t fall into the normal transaction. So I would typically kind of need a journal entry to record that. But I can use these register format to do it as well. So I might then go into let’s say, a fixed asset account like the truck.
So here’s the truck and I could go Okay, this is the truck rev register. And then I can just record the increase to the truck, and the other side would then go to the loan, and so forth. If there’s just two accounts involved, it could be a nice a nice way to enter transactions that are not normal. To use these other these other registers. Note that you do not have registers for the income statement or temporary accounts down below. Once you have an account set up and you have activity in it, you can’t typically delete the account after the point in time there’s activity in it, but you maybe you could make it basically inactive.
So if you wanted to say hey, I’m not using this account, I got this all this stuff in my chart of accounts, I want to make some accounts inactive, or when you first set up your chart of accounts, you might have a whole bunch of accounts and you might want to trim down your accounts later. You don’t want to delete them possibly at the beginning, but the accounts that you note that you’re not using. You could either delete them if they haven’t been used at all, possibly, or you can just simply make them inactive.
So if you make it inactive, then, then it won’t pop pop up here in your chart of accounts. So let’s pick like an expense account down here. Let’s go to penalties and settlements. And I’m just going to hit here and I’m going to make it inactive. So we’ll say inactive, are you sure you want to make it I’m gonna say, yeah, make it inactive. And then if I, if I go back up top and hit this cog right here, this is showing the columns. And no, you could basically show less columns that you if you choose to, but mainly, you’re going to go in here and choose, I want to see include the inactive items.
And then if I include the inactive items, it should bring that item back in. So if I scroll back down, then I’m going to be able to see that that item here, and it says, I can make it active, right, I can make it back to active and I’m going to bring it back there making it active again. So now we have it back in action back active status. So we can also basically run a report, if you wanted to see this in a report format, you can run the report. And then here’s our report. I don’t use that too much. I’d rather run a report basically with our with our cut our Reports section.
But you can do that you can edit using this tool as well, if you want to edit a little bit more quickly, possibly. And I’m going to close this back out. And then you have your printing option here. So we’ll talk more about the chart of accounts when we start a new company file because that’s when we kind of have the first chart of accounts set up and we’ll build the financial statements from scratch and a clean chart of accounts with nothing in them from that point.
Also note that by default, the chart of accounts does not include account numbers by default, which if you’re more advanced user, you might want to turn on the account numbers, what that means is it’s typically going to be an order by account type or you want to think about it in order by account type, it’ll show up on the financials in order by account type, but then within the account type, it’s going to be an order by alphabetical order. So within the expense category, you can see then it’s an order by alphabetical order, but the whole thing won’t be an order first and primarily by alphabetical order, it’ll be an order by type first.
Now you can’t change that. But you’d want to kind of think of it in that way, because that’s how it’s gonna go on the income statement as well. If you wanted to turn on the account numbers, you can hit the cog over here, and then we’re going to go to the account and settings. And then you can you can go down to the advanced and then then you want to turn on the account numbers right there.
So you can edit that one, enable the account numbers, and then save that now we’re not going to enable the account numbers in our practice problem. But we might go into a special a special section to just look at the account numbers, they can be a little bit tricky to set up, but they do give you that added amount of control with the account numbers. So now if I was to add a new account for example, I’ve got my number up top