In our last post we talked about setting up and editing accounts in QuickBooks Online (QBO). We find that QuickBooks users, both desktop and online, often end up with too many accounts. It is far more likely that, over time, they will create too many rather than too few accounts.
You, the QBO user, may realize this when you access a profit and loss report. The report seems to stretch to far too many pages.
It may become difficult to compare expenses in certain categories over consecutive months or years. Those expenses have been posted to an ever increasing number of expense accounts that no longer line up side by side on the profit and loss.
It is more and more difficult to determine whether or not a certain expense is becoming too large compared to income. That expense total is broken into several rows on the profit and loss report (separate accounts). This forces the person analyzing the report to total by hand several numbers to see what the total office expense (for example) really is.
There are a couple of ways you can re-organize your chart of accounts.
One that we mentioned in the previous post was using subaccounts.
You can see in the above screenshot the use of subaccounts under the parent account “Legal and Professional Fees.”
The next parent account on the list is Maintenance and Repair. If you could see the entire list, you would find that there are several repair expense accounts.
Building Repairs is an account alphabetically listed farther up the list. So is Computer Repairs. Equipment Repairs is in order with the other accounts beginning with E.
If we want to clean up this part of our chart of accounts, we have a couple of choices.
If we only care about maintenance and repairs costs as a total, we could merge accounts.
Another alternative is to make the three repair expense accounts subaccounts of Maintenance and Repair. If we choose this option, the accounts will list together on the list just like the accounts under Legal and Professional Fees.
Here is how these accounts will appear on a profit and loss report:
The more drastic option is to merge them. A subaccount does not need to be the same detail type as its parent, so this does not affect editing the repair accounts to be subs. The accounts do, however, need to be the same detail type in order to merge.
Merging an account involves editing one so that the name, as long as type, detail, etc. are the same, is an exact match to another account on the list. This makes the two accounts one. All transactions that referred to the two accounts, are now posted in the one remaining account.
This obviously affects all transactions, changing all prior years. It is not reversible.
The safer solution is to use the subaccount alternative. Then, if you do not want the detail in the accounts you have made subs, delete them.
Delete does not actually erase the account, but makes it inactive. This solution allows the account, if it has a balance, to appear where necessary on reports. It will not be available for creating new transactions.
In time, as you move into future years, the inactive account balance will not show on reports like the profit and loss.
More on Standard Chart of Accounts…