In QuickBooks accounting software, the chart of accounts is a crucial part. You must create the chart of accounts for your business and should keep it optimized for your better understanding.
You must use your chart of accounts as a strategic tool to manage your business in a proper way. The structure of the chart of accounts in QuickBooks is a bit critical, therefore you must optimize your chart of accounts in QuickBooks accounting software.
Today in this article we will provide you some tips and strategies to optimize your chart of accounts in QuickBooks accounting software. Read the article till the end to make sure that you optimize your chart of accounts in a proper way.
Tips to Optimize Your Chart of Accounts
Follow the below mentioned tips and strategies to optimize your chart of accounts in QB.
Standard Structure of Chart of Accounts in QuickBooks
The most basic tip to optimize your chart of accounts in QuickBooks accounting software is that you must know the standard structure of the chart of accounts in QuickBooks accounting software. The chart of accounts in QuickBooks accounting software addresses 5 categories which are crucial for the accounting cycle. These 5 categories are as follows
- ASSETS:- This helps us to track down the ownings of the company.
- LIABILITIES:- This helps us to know about what the company owes today and what the company may owe in future.
- EQUITY:- This helps us to know about the investments that you made in your business.
- REVENUES:- This will help you to know about the sales revenues of the company, the price of the goods which are sold by your company and will also help you to know about investments and other incomes.
- EXPENSES:- This will help you to know about the expenses of your company.
Now let us have a look at the components which are included in the chart of accounts record for each account.
- The first and foremost component is the “Account Name”.
- The second component is the “Account Number” i.e. the number given to that particular account.
- The third component is the “Account Type” i.e. the category of that particular account as mentioned above.
- The fourth component is the “Account Description” i.e. the description of the uses of this account and the description of the type of transactions made by that account.
A Systematic Approach to Build, Establish and Maintain The Chart of Accounts
One of the most effective ways to build a successful chart of accounts is by maintaining an order and defining that order so that it best suits your business needs. The accounts which are used frequently should be placed at the top of the list and the accounts which are less used should be placed at the bottom of the list. In order to maintain the priority you can use the numbering system for the 5 categories of accounts. For example,
- For “Assets” category you can use the numbers from 1000 to 1999
- For “Liabilities” category you can use the numbers from 2000 to 2999
- For “Equity” category you can use the numbers from 3000 to 3999
- For “Revenues” category you can use the numbers from 4000 to 4999
- For “Expenses” category you can use the numbers from 5000 to 5999
Use Parent Accounts and Subaccounts
QuickBooks accounting software allows a multi-level account model in which you can create accounts which will serve as subsidiaries for parent accounts. You can create a parent account for a particular purpose and then create several sub accounts which you can use for several purposes under the parent account.
Let us take an example to make this concept clear. Let us assume that you made a parent account named “Facility Expenses” and then made other sub accounts named “Rent Expenses”, “Utilities” and “Cleaning Expenses” under the parent account. Thus it will help you to view them collectively and will also help you know about each of the individual components of that parent account.
Using Other Tools to Use the Chart Effectively and to Keep it Simple
The chart of accounts should be kept simple and precise in order to make it effective. If you make the chart of accounts too complex, it will be very much confusing to track all the financial reports of your company. It will create a bad impact in your business and you will not be able to make the right business decisions.
There are other tools that you can use to support your chart of accounts. Some of the tools are
- Classes:- It is used to separate transactions of different departments.
- Types:- It is used to assign individual vendors and customers to classify them.
- Locations:- It is used for the purpose of tracking data specific to individual business locations.
Avoid Guessing While Bookkeeping
You must have a proper knowledge about how to use a chart of accounts for proper bookkeeping. You have to make sure that the transactions of your company are coded properly. When you or your bookkeeper or other member of your company enter the details in a chart of accounts, you have to make sure that you use the class lists properly and also categorize your expenses. You have to also set up a “Placeholder account” which is generated by QuickBooks accounting software. The details present in your reports reflect the qualities of your company’s financial reports.
We hope that now you can optimize your chart of accounts in QuickBooks accounting software easily by yourself. We will recommend you to read the entire article and follow all the steps without skipping a single step. If you still face some confusion or problems regarding this, then you can drop a call +1-844-405-0904 to us to seek help from QuickBooks experts.