It’s easier to use QuickBooks when you understand something about accounting basics. Here’s a look at what accounts your Chart of Accounts contains.
If you’ve been using QuickBooks for very long, you know that the transactions you create must be assigned to accounts. QuickBooks assigns default accounts sometimes, and this can help if you’re unfamiliar with the concepts involved. But it’s worth taking some QuickBooks classes to learn how to use QuickBooks — and also to get some background on the bookkeeping process itself.
You know that your company file’s Chart of Accounts is made up of individual accounts. But did you know that they’re numbered and stored in logical groupings?
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If you ever did your accounting manually, you probably divided your paperwork into file folders, or even entire drawers. Your Chart of Accounts functions similarly, putting related types of accounts in the same groups.
You don’t necessarily have to understand these account categories in order to use QuickBooks for your accounting chores. But you’d be surprised at how much easier your bookkeeping tasks will be if you take some time to learn the basics. Reports will make more sense, and you’ll “get” what’s going on with your money a lot better.
We’ll look here at a typical QuickBooks Chart of Accounts and its range of account numbers to illustrate this concept. This way, if you need to add an account, you’ll have a good idea of where it should go.
Assets are simply things that your company owns. They’re divided into two types in standard accounting, and in QuickBooks:
- 10000-14999 are your current assets. These are defined as things that either are cash or could be converted to cash quickly. They include bank accounts, accounts receivable and inventory.
- 15000-19999 are numbers assigned to your fixed assets. Your accountant can suggest a minimum monetary value to assign to these accounts (or you could take a QuickBooks training course to learn about this – and more). Fixed assets are physical items that you would have to sell to come up with cash. Any real estate you own, as well as things like equipment and vehicles, are fixed assets.
What money do you owe to individuals and other businesses? These are your liabilities. When funds come into QuickBooks as the result of a loan, for example, they’re not considered income. Rather, they go into a liability account.
30000-39999 Equity (or Capital)
Your equity accounts will be organized differently depending on whether you’re a sole proprietorship, partnership or corporation. The word refers to the company assets that the owners could consider to be theirs. It’s determined by subtracting liabilities from assets. If you have a million dollars in total assets and liabilities of $750,000, your “worth” as the owner is $250,000, which is why this is sometimes referred to as “Owner’s Equity.”