- When I created the company file, I showed you how you could choose an industry that was close to the one you're setting up because this is how QuickBooks chooses some default accounts to get you started. At the time I mentioned that you could change these or add some at any time and we're going to do that right now. To find these accounts, in the Company center on the righthand side, click Chart of Accounts. This is going to bring you into the screen where you can see the list, well it's a master list, of all the Chart of Accounts that QuickBooks uses to function.
These accounts are created so that you can match a line item transaction, such as a deposit or an expense, and you can match it up to a business account, such as Advertising Costs or Legal Fees. This way, when it's tax time, it's easy to see what your legitimate business expenses are and all your accounts can reconcile. Remember earlier when I talked about how QuickBooks uses the industry standard double entry system. That's where one account is debited and another account is credited.
The Chart of Accounts is the main list of where QuickBooks is debiting and crediting. So if you make a credit card payment, your Credit Card Account will be credited, while your Bank Account that you used to pay that credit card bill will be debited the same amount. So here's the Chart of Accounts and it's a very easy-to-read list of all the accounts that your company file uses in one place. You can see the NAME of the account on the left hand side and you click to sort, if you have a very long list, by clicking the word NAME at the very top of the column. You can see the TYPE of account it is, such as Fixed Asset or Expense Account, and if your account has a balance, you get a column so that you can see the balances of those accounts.
So there's Fixed Asset accounts such as items that you own like furniture and equipment, and there's also Liability accounts, which are accounts that hold money that you're liable for and Income accounts. These are transactions that pay you money and they're money towards your business. There's also Equity accounts, which is money that you put in towards your business. Equity accounts are also the difference between your Liability accounts, which is what you owe, versus your Assets, which is what you own.
There's also an account called the Cost of Goods Sold. This is a way to keep track of things like shipping fees in which you're certainly collecting money from your customers and that money has to be accounted for, but it's not direct income to you. This money is going to go right back out as you're collecting the costs to ship them the product. Finally, there's Expense accounts, which is how you can keep track of things like travel and all other costs associated with running a business. Income and Expense accounts are all directly related to your company's ultimate profit and loss.
Now it's important to note that you can have multiple account types. For example, as you can see in this default list, there's lots of Expense accounts and these are going to grow and change according to how your business is. Default expenses that are included here may not apply to you at all. For example, you might not have a Rent Expense at all, and in that case, you wouldn't want it to show up in this list. Now once you start sending invoices to clients and entering bills to vendors, you'll see new accounts that QuickBooks creates that have balances.
These are Accounts Receivable, which is money that's owed to you such as invoiced clients, and Accounts Payable which is money that you owe other people, such as bills for vendors. These are industry terms and you can even use those terms to ask for the right department when you're calling a company about money owed to you or money that you've sent. Now over this course, as we create invoices and add products and services, you'll become very familiar with these accounts and how you'll interact with them on a day to day basis. But one of the first things that you want to do is go through and clean up some accounts that you know you'll never need, such as this Rent Expense.
Right click on the expense and choose Make Account Inactive. This is going to keep the account there in case you do need it one day, but it's not going to clutter up the view. To get it back at any time if you do have this expense again, click Account at the bottom left hand side and choose Show Inactive Accounts. Any account that has an X next to it, is inactive. Now that it's visible, simply right click on the account and choose Make Account Active.
It now shows back up in the view again. So let's add an account. Click Account on the bottom left hand side and select New. The first thing you need to decide is what kind of account it is, such as an Income or Expense account, or a Fixed Asset, Credit Card, or Loan account. In this case, I'm going to make a new Expense account. Select the blue Continue button. The next thing you need to do is give your expense account a name. Now this isn't any official capacity, it's just something that's meaningful to you.
I'm going to make an Expense account to track how much I spend on conferences. You don't have to make this a subaccount of anything, but you can, such as Travel Expenses. You can give it a description if you want, and a Tax Line Mapping, such as Travel. When you're done, choose the blue Save and Close button. You've now created your own expense account. Let's create one more. I'm going to create a new Income account. Because this is an olive oil company, we host tasting parties so that's an additional source of income from the company and I need to track how much we make on those.
So I'll click Account again, and I'll select New, and this is going to be a new Income account. I'll click the blue Continue button. I'm going to call this a Tasting Party. In the Tax Line Mapping field, I'm going to choose Other Business Income. When I'm done, choose Save and Close and I just created a new Income account. There's one more thing I want to show you, you can double click on these accounts.
Clicking on an Income and Expense account yields a report because these are direct profit and loss accounts. I'll close out of this for now and you'll notice that some of those accounts have balances next to them. Double clicking on any account which shows a balance will bring up a Register in which you can see transactions that match up with other accounts because of that double entry system that QuickBooks uses. So that's how the Chart of Accounts works. Up next let's add some other accounts, like banking credit cards.
- Setting up a new company file
- Working with the chart of accounts
- Adding bank accounts and credit cards
- Adding service or inventory items
- Setting up sales tax
- Adding customer, vendor, and employee profiles
- Billing customers
- Receiving payments
- Recording deposits
- Handling refunds and credits
- Paying employees
- Sharing QuickBooks with others
- Running reports