A Chart of Accounts can help any business manage its finances, however, it’s only useful when organized properly. While it’s common for small business owners to tackle this organization project at the beginning of the year, the company can benefit from organized financial data regardless of what month it is. A review of what to include in a Chart of Accounts is helpful before we discuss organization tips.
The Four Most Important Items to Include in a Chart of Accounts
When preparing a Chart of Accounts for the first time, make sure it includes data from the following four categories:
- Assets: Typical examples of assets include cash, inventory, and property. An asset either represents a specific value for your company or provides it with residual value.
- Income: This should include all accounts that produce revenue for your business.
- Expenses: This category includes any money you pay to operate your business. Some common examples include advertising, employee wages, and rent.
- Liabilities: A liability is any amount that you owe to others for goods or services already received. You will need to give up cash at some point to settle outstanding liabilities.
How to Add New Items to Your Chart of Accounts When Working with QuickBooks
It’s easy to add new information to your Chart of Accounts after calling up your QuickBooks program on your computer. Pressing the ‘CTRL’ and ‘N’ buttons at the same time open a window for you to add a new account. You need to click the tabs showing the words ‘Account’ and ‘New’ before you can enter any information.
Next, you should select the type of the account you want to work with such as Credit for your company’s line of credit with a local bank. The window labeled ‘Add New’ will show a list of the most common types of accounts. You will need to go to ‘Other Account Types’ if you don’t see what you need.
How You Benefit from Regular Maintenance of Your Chart of Accounts
The most important benefit of cleaning up your Chart of Accounts is that it reduces the likelihood of error by eliminating confusion. Maintaining your chart throughout the year ensures that you have the right number of accounts and that you have named them correctly. Ultimately, a clean Chart of Accounts makes it easier for you to glean valuable business information to help you make the best decisions for the future of your company.
QuickBooks Features to Clean Your Accounts
The default setting on QuickBooks is to sort items alphabetically and by type of account. You can override this setting if you find that something else works better for you. The next feature allows you to make accounts, products, services, or vendors inactive. You can also merge accounts or map new services and products to accounts.
Establishing and maintaining a Chart of Accounts with QuickBooks can be challenging, especially when you don’t have a background in business accounting, Doerhoff & Associates would be happy to help. Please contact us to discuss your needs.