Setting up your Chart of Accounts is extremely important as this can be thought of as the “back bone” of your accounting system. It will be difficult to obtain meaningful financial statements if your Chart of Accounts is not set up properly.
You will have an option to select from predefined industry templates when setting up a company file in QuickBooks®. You are then able to customize accounts to meet your specific needs. You can easily add/edit/delete accounts from the template but you will need to think about which accounts you want to see in your financial reports.
Accounts should be organized into six basic categories:
The Balance Sheet categories are Assets, Liabilities, and Equity. Think of these categories as follows –
Assets are economic resources your business owns.
Liabilities are amounts your business owes.
Equity is what is left over for the owner(s) and is equal to Assets less Liabilities.
The Profit & Loss categories are Income, Cost of Goods Sold, and Expenses.
(Assets and Liabilities are further categorized as Current and Long Term. Current Assets are generally considered to be convertible into cash within one year. Current Liabilities are generally expected to be paid within one year.)
Consider consulting with an experienced accountant to suggest an ideal set up for your Chart of Accounts. You will be glad you went to this additional time and expense in order to get the most out of your accounting software!