Daisy Flowers runs a small gardening shop in Houston, Texas. Her business was extremely successful, but Daisy had a problem. She was disorganized and she felt like her business finances were completely out of control. After a long, healthy discussion with her accountant, Daisy decided to purchase QuickBooks Online to get her business finances organized once and for all. Since completing the initial setup of QBO, Daisy has stumbled onto something she does not understand – the Chart of Accounts. She feels a bit confused and overwhelmed, and cannot quite wrap her mind around this “Chart of Accounts.” She has questions, and she needs answers now! That’s why 5MinuteBookkeping is here – to put answers to Daisy’s pressing QuickBooks Online questions. Today, we’ll go over the QuickBooks Online Chart of Accounts – Frequently Asked Questions, so that Daisy (and you) can start working with the Chart of Accounts in QBO without any worries.
#1 – What is the Chart of Accounts?
The Chart of Accounts is the foundation of every small business accounting system. It is used to organize and categorize all of Daisy’s business transactions. I like to explain it this way – bookkeeping in not so much about numbers and math, it’s about categorizing transactions. Picture a large, well-organized closet. Everything has a place – items are arranged by season, color, fabric, ect. Categorizing transactions is like organizing things in this closet. Everything has a place in the QuickBooks “closet”. The Chart of Accounts helps organize Daisy’s business transactions. Each transaction must be assigned to an account. All of the accounts together make up the Chart of Accounts.
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#2 – How do I get to the Chart of Accounts?
To get to the Chart of Accounts:
- Select the gear icon.
- Under ‘Your Company’, select ‘Chart of Accounts’.
(If you see the page below, then click See your Chart of Accounts)
#3 – How do I add Accounts?
To add an account:
- Open the Chart of Accounts.
- Click New in the upper right-hand corner.
Let’s add an expense account for Daisy.
- From the Category Type, select Expenses.
- From the Detail Type, try to find the best match for the account being added. (If you are not sure, then select Other Miscellaneous Service Cost).
- Under the Name field, add the account name.
- Once finished, click Save and Close.
The newly-added account will now show up on Daisy’s Chart of Accounts.
#4 – How do I edit Accounts?
To edit an account:
Open the Chart of Accounts.
Here is the Office Expenses account. But Daisy wants to change it to Office Supplies.
- Click on the drop-down arrow to the right of the Office Expenses account.
- Select Edit.
- Under the Name field, enter Office Supplies.
- Finally, click Save and Close.
If Daisy goes back to her Chart of Accounts, she can see that the account name has now been changed to Office Supplies.
#5 – Does deleting an account in QBO hurt anything?
NO, deleting accounts only hides the account from the Chart of Accounts. It won’t delete any transactions that have already been entered in that account.
To delete an account:
- Open the Chart of Accounts.
- Locate the account to delete.
- Select the drop-down arrow next to View Register.
- Select Delete.
However, once an account has been deleted, transactions cannot be coded to that account. In addition, transactions classified to deleted accounts cannot be edited anymore.
The only way to classify or edit a transaction posted to a deleted account is to reactivate the deleted account in QuickBooks.
To un-delete (or reactivate) an account:
- Open the Chart of Accounts.
- Select the Gear Icon.
- Check the Box next to “Include Inactive”.
- Find the account to undelete.
- Select Make Active.
#6 – Am I adding too many or too few accounts?
How does Daisy know whether she needs an account? How does Daisy know if she’s adding too many sub-accounts? It all depends on what type of accounts she’s using. For example, if Daisy wants to track travel expenses and adds sub-accounts for airfare, auto, hotel, and travel meals, is that reasonable? The answer is YES.
However, if Daisy wants to track office supplies by paperclips, pens, paper, toner, binders, notebooks, and 10 other sub categories, then the answer is NO – those are too many sub-categories, and would not be reasonable. Too much detail in the sub-accounts will just clutter up Daisy’s Chart of Accounts and reports.
Closing
With her burning questions finally answered, Daisy is now ready to start working on her Chart of Accounts. And now that we’ve covered the QuickBooks Online Chart of Accounts – Frequently Asked Questions, I challenge you to look through your Chart of Accounts and use the answers to the questions we just covered to gain a better understanding of the Chart of Accounts for yourself. Happy Bookkeeping!