Tracking sales and business expenses is one of the most critical functions in running a successful business. Without knowing how much money your business is making or spending, it is difficult to determine actual performance and profitability. Many entrepreneurs tell me that they think they are making money, but when I ask how much they are usually stumped.
QuickBooks makes it easy to track sales and expenses, but to get it right, you need to set it up right from the start. The setup begins with the chart of accounts list. This is a list that contains all the financial categories in a company’s accounting system. An account is a unique category that represents a specific type of financial transaction. This list is used to organize the finances of a company, prepare financial reports, and record various transactions such as expenses, sales, investments, asset purchases, loans, etc.
The most important point about designing an effective chart of accounts is to start with the end in mind. In other words, you must first identify what information is relevant to your decision-making process, and then determine how detailed you want your chart of accounts to be. For example, if you are running a trucking business, it might be relevant to know how much you spend on gas, parking, and tolls. Since these expenses can represent a substantial part of your total financial output, many trucking companies will specifically track these expenses on an individual basis. However, if you are an interior design company, the individual breakdown of these car / truck expenses may not be relevant or significant. Designers often record all automobile-related expenses in a general category called “Automobile Expenses.” For an interior design company, the level of detail of expenses may be more important in a different area, such as: customer purchases such as art, furniture, fabrics, etc. Or in the area of costs related to work, such as: reproduction of plans, travel or subcontractor fees. Therefore, identifying the level of detail you need is the most important step in designing a well-functioning chart of accounts.
QuickBooks allows you to group and organize expenses in a standard Chart of Accounts template using a master category and numerous subaccounts. For example: most companies pay various types of insurance expenses. QuickBooks allows you to create a master category called Insurance with subcategories listing various types, such as: health, liability, auto, etc. At the end of the period, you will be able to see not only the total insurance costs, but also the amounts for each individual sub-category. This level of reporting will help you better understand your business and allow you to solve problems faster, strategize smarter, and make smart decisions faster.
Simple step-by-step instructions for setting up your chart of accounts with QuickBooks software
Make sure your QuickBooks software is open.
1. Choose Lists from the top menu bar and then click on Chart of Accounts
two. Click the Account button at the bottom left and choose New. This command is used to create a new account
3. When the New Account window opens, identify what type of category the account belongs to. QuickBooks will use this information for reporting purposes.
Four. Click Continue.
5. In the Name field, type the name that you are assigning to the account. For example: insurance, legal expenses, accounting fees, etc. Be brief and don’t use supplier or customer names like: Jon’s Automotive. The category name is a general description.
6. If you are adding a subaccount to a parent category, click the Subaccount check box. If you have created an account called Utilities, you can now create subaccounts such as: Electricity, Gas, Water, Recycling, etc.
7. In the Description box, provide a brief explanation of the purpose of this account.
8. Proceed to enter any relevant information about your bank in the other fields
9. If you know which tax return line item the new account belongs to, you can select it from the Tax line drop-down menu. Most people leave it blank and you can too. Unless you plan to import financial data from QuickBooks into Intuit-compatible tax preparation software, you don’t need to map the tax lines for your new accounts.