When using Quickbooks, you’ll want to pay close attention to your chart of accounts. This is the heart and soul of your account, revealing key information about your bookkeeping. But newcomers are often lost and confused when accessing their chart of accounts. If you’re still trying to grasp the fundamentals of this feature, you should begin by familiarizing yourself with its four main sections. Only then will you truly understand how the chart of accounts works.
In Quickbooks, the chart of accounts contains the following four sections: assets, liabilities, income and expenses. Granted, you’ll also find equity listed as a section, but we’re going to omit it because most accounts and business owners rarely use it when managing their books. Equity is essentially income that’s left over after accounting for all of your day-to-day business expenses and activities.
As you may already know, assets consists of anything that has monetary value. This includes property, vehicles, equipment, inventory and more. It’s important to note, however, that assets — when added to your chart of accounts — will include factors like depreciation, as well as how much you paid for the asset. As such, your assets may appear smaller here than when viewing on other formats, such as a real estate website (for property).
On the other side of the fence is liabilities, which consist of debts like bank loans, small business loans, promissory notes, tax payments due, utility bills and other bills. Also known as accounts payable, they are a fundamental component of running a business. When accounting for liabilities, only include the amount you owe, not the interest amount owed.
The third main section in Quickbooks chart of accounts is income. This section is pretty self-explanatory, as income refers to how much money the business has coming in. You may initially start off with just a small amount of income. As your business grows and develops its footing, however, it can quickly increase. Intuit recommends segmenting your income based on type, as opposed to grouping them all together in a single account.
The fourth and final main section in Quickbooks chart of accounts is expenses. Much like the aforementioned income, it’s also a good idea to break up your expenses into several categories. With that said, Intuit recommends keeping your expense categories simple by creating only what you need. There’s no need to create hundreds of different expense categories, as this will only make your accounting that much more difficult. Stick with just a few basic categories to streamline your bookkeeping efforts.
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