You may have noticed that QuickBooks uses several “Lists” to organize your financial information.
Today I am going to discuss one of the most important lists in your QuickBooks file: the QUICKBOOKS “CHART OF ACCOUNTS”.
All transactions entered in QuickBooks MUST use one of the accounts in your QuickBooks “CHART OF ACCOUNTS” to balance the transaction. This is where you assign a category, like “Utilities” to the amount you pay to the Electric Company on a QuickBooks check, credit card charge or bill type of transaction.
Chart of accounts (definition):
“A complete list of a business’s accounts and their balances.” The Chart of Accounts serves as the foundation for the company’s Financial Statements. When you created your QuickBooks company file, QuickBooks set up a chart of accounts designed especially for your business. You can customize it by renaming the accounts, editing the account type, or creating new accounts or creating sub-accounts.
The accounts that appear on the Balance sheet are called “balance sheet accounts.” Other accounts track particular kinds of expenses or income and will appear on the Profit/Loss Statement.
To open the chart of accounts in QuickBooks:
- Go to the “Lists” menu and click “Chart of Accounts”
Don’t confuse the Chart of Accounts with Names, like Vendor Lists or Customer Lists! QuickBooks tracks people/companies that you pay or people/companies who pay you. When you type a new name on an invoice or check, it will ask you to set up that name on one of it’s name lists: each one will be categorized as either a “Vendor”, “Customer”, “Employee” or “Other names” to assign transaction history, to help answer questions like “How much did I spend with vendor X last year?” or “How much business did we do with Customer Y so far this month?” where the Chart of Accounts is used to track spending/earning categories and account balance activity (that appears in your balance sheet account registers).