Customize your Chart of Accounts in QBO - Best Practices from a CFO

well hello we are continuing our series  on quickbooks online and how to do stuff   how to do things in quickbooks online and we're  going to keep it really basic because we are going   to kind of bring some high level concepts to you  we might get into some nitty gritty but overall   this is how to do stuff in quickbooks online and  i wanted to bring to you guys today the topic of   the chart of accounts now accountants get really  excited about chart of accounts because we know   how important it is and we know how much it  can make our lives easy or the reporting that   much better but if you are not an accountant you  may have never actually looked at your chart of   accounts before and thought hey i can do something  about that i can change it i can make it better   what makes it better you may have never even  thought about it before and that is okay   but what i want you to keep in mind if you are a  small business owner using financial statements   where you're wanting to look at your financial  information i want you to think that the chart   of accounts is going to help you get there  the chart of accounts is going to help you   organize think about it like a filing system  for your financial information so the chart   of accounts which i get into it doesn't really  make a lot of sense that it's called that but   this is your filing system this is your file  folder names that we're putting on each file   folder so that we can put expenses into it and  then at the end of the day get data that comes out   and reporting that will help us understand what's  going on in our business that much clearer i   i kind of find that exciting so hopefully that's  exciting to you if this type of information is   helpful to you and this is the stuff that you  need to know please make sure you're subscribed   to the channel click the little bell so that you  get notified when there's a new video we try to   do videos once a week over here please also like  this video if it is helpful and leave any comments   that you may have or questions or maybe video  suggestions in the comment section below because   we are doing this series and we are going to be  bringing lots of great videos to you on how to use   quickbooks online and how to do stuff in it okay  let's go ahead and talk about chart of accounts   all right welcome back to the sample company  of quickbooks online and today we're going to   talk about the chart of accounts so if you are an  accounting person you probably have heard the term   chart of accounts before but if you aren't and  you're just trying to figure out what all of this   accounting lingo is a chart of accounts is really  just the list of all the different buckets that   you could put your money into when we're recording  it for bookkeeping so when i say buckets what i'm   meaning is the basically the accounts and i hate  to use that word to describe the word but when   we are looking at let's say your report so your  profit and loss statement or your balance sheet   every single one of these line items is quote  unquote and account and some of them here are   sort of bundled up so that you can see this  these accounts here roll up to this larger   account so these are considered sub-accounts  of this account and this is considered a   sub-account of this account so you can kind of  roll them up and look at them in a different way   and all of these kind of roll up into income  for example so these accounts these line items   the chart of accounts is just a list it's just a  list of all of these and the really good news is   that it's extremely customizable so that's what  we're going to be talking about today and there's   a reason that we customize our chart of accounts  and you can find the chart of accounts by going to   accounting over here on the left and then chart of  accounts is the first tab reconcile is the second   you can find it right here on the chart of  accounts or you can just go straight here   and go there okay keep in mind you can have a  certain number of accounts based on your qbo plan   you know it'll alert you if you have too many  accounts but most of the time i try to make   sure that people don't over account you can  have way too many accounts and it just can   get really confusing and i will share with you  guys an example sort of a standard that i like   to see when i go in and i help a business and i'm  trying to revamp their chart of accounts okay so i   actually will make a download available for you  guys for free so you can kind of see an example   of one that's done and it's nice and organized  and not too detailed but detailed enough okay   so when you first open up a quickbooks account  it will give you a standard chart of accounts and   it will also pretty much any accounting system  that you have it will probably sort of default you   into a basic chart of accounts so you're not going  to have to add every single one of these when you   first get started they're going to give you a  standard version since this is a sample company   and this is a landscaping company you can see here  that they've added some very specific accounts so   landscaping services job materials and then  they have these very specific income items added   so all of these have been customized for this  sample company for example there's some things   that just come very standard let's say like  a checking and a savings account accounts   receivable inventory asset and categories assets  undeposited funds a lot of these things are just   come sort of as is and then you can either keep  them or you can delete them there are some things   that quickbooks will not let you delete but if  you did want to see let's say this visa card   let's say you're not using it if you wanted to  make it inactive and get rid of it you could   so there you go i just inactivated a visa account  because i said hey that's something i set up but   you know it was an accident i don't need that  account you can do that okay if i needed to   reactivate it you can reactivate it but right now  we're just kind of i'm just showing you sort of   how you can customize some of this stuff and the  reason we customize chart of accounts is because   every business is different and we can affect how  the p l looks how the profit and loss statement   looks if we change the chart of accounts so we  can also do things like organize it in a way where   maybe we have our income line items in a certain  order and then we could have cost of goods sold   line items in the same order so we might be able  to see you know if we're selling a product that is   maybe say t-shirts we could put that as an income  line item and then t-shirt expense or cost of   goods sold could also be in the same order so it  could just help us kind of organize and make sure   that things are nice and clear and understandable  on the p l sometimes p l's just you know they look   messy and so it's a way for us to organize  and also make things easier on our eyes and   easier to understand so something to understand  about quickbooks online is how they organize the   chart of accounts so the first thing it will  look at is the type and then the detail type   and then it will go by alphabetical order from  there there's a very standard order of a financial   statement income comes first and then expenses  and then other income and then other expenses   and then the balance sheet is similar you're going  to have assets first current assets then long-term   assets then you're going to have liabilities  current liabilities long-term liabilities and   then equity that's why they first look at type  and then they'll look at detail type in order to   order the what you'll see on the p l or on the  balance sheet and then it will go by alphabetical   order so you've got the option of adding another  way that you can order things because i personally   don't like all of my expenses especially when you  get into the expense category that the expenses   are in alphabetical order to me that just makes  no sense and so i'll show you an example of that   here we're in expenses and so advertising is  right next to automobile which is right next to   equipment rental which is next to insurance and  then job expenses and then legal and professional   fees and to me this is just messy why would i  want my accounting to be organized this way it   doesn't make a lot of sense i want to see groups  of things put together when i'm working on my   chart of accounts so i want to see let's say all  of my office expenses in one place and i want to   see all my payroll expenses in one place i don't  want to have payroll taxes because that's a p   show up in a different place than salaries and  wages line item that's a you know starts with an   s i just really don't like that so quickbooks does  have a solution to fix that and i want to show you   guys how to do that so you go up here to the gear  icon and then you can go to accounts and settings   and then we're going to go to advanced and  there's the section to edit the chart of   accounts you can click edit and we are going to  enable account numbers okay so it was not enabled   i enabled it and then we're gonna go show account  numbers okay so now that we have this ability to   show account numbers i can go in and this will  become the default of how things will be ordered   the account number okay so quickbooks will still  look at type and detail type but it's going to   look at number before it looks at the alphabetical  order of name so what that means is that if i   go in here and i want to edit my checking account  let's say i am going to do number one zero zero   and then i'm going to save and close and then  let's say i have another checking account   but this is my main checking account i want that  other one was just one that i don't use very much   maybe i want to add my main checking account i  want this one to come first i want this one to be   one zero zero one even if i put let's see if  we can mess it up so i changed the order i put   main checking instead of just checking but i  made the number 1000 rather than one zero zero   one let's save and close and see what it does  okay so automatically it put it in order here   let's go and see on our balance sheet what it  looks like all right so you'll see now that   this one is ahead of that one okay so the main  checking even though technically this c should   become come before m we're going to default  to the actual numbers so what this means   is that we can now order our income you know if we  want to have design income come first and then i   want landscaping services and but maybe i want  pest control services to be you know second in   line i can reorder all of these things and that  can be really helpful when it comes to just making   the p l a lot more readable and a lot more useful  to management so what i want to show you now is an   example of a chart of accounts and this uses a  standardized numbering system so again this is   something that i am making available for free as a  download grab a copy this is not anything that is   my proprietary information this is just something  that i've seen lots of business owners use this   type of sort of general code i've seen some  modifications on it in general but overall this is   just kind of a numbering system that anybody can  take and leverage and use for their own business   there's no right or wrong to this it's just  sort of generalized and you will see this   in practice in lots of different organizations  and some of them will have slightly different   numbering systems but this is something that  i've seen to work pretty well and this is what i   use with a with most of my clients so over here  this is an example of a chart of accounts okay   so if you were to export chart of accounts out of  quickbooks online it looks something very similar   to this i've done a little bit of editing here  but it shows the account number account name   type detail type and then any notes i actually put  these notes in here so they could be understood   a little bit better and then i've put a just a  general code of what i like to see over here so   i typically do assets in the 1000s liabilities  in the 2000s equity accounts are in the 3000s   revenue or 4 thousands cost of goods solds are  five thousand payroll i usually do six thousand   all other expenses seven thousand and then  miscellaneous eight thousand i've seen lots of   people do lots of different things with expenses  maybe everything is in the six thousands and just   they don't use sevens or eights at all you  know again this is totally customizable to   what makes sense for you and your business so for  example we would just organize as we see fit so   i would organize my balance sheet to say okay i  want my bank account to i want this bank account   to show up first so i'm going to make this a  lower number than the next number and then the   next number and when you have a bookkeeper and  they're doing a lot of accounting it can make the   bookkeeping much quicker by knowing these numbers  and doing it really quickly especially if like   you know you do a lot of transactions towards cost  of goods sold for example just typing in a quick   number rather than trying to go and search for the  letters can be really helpful for your bookkeeping   and again you can line up let's say for example  you can line up your sales with the cost of goods   sold that matches so service line number one  matching up with service line number one and   you can use a similar numbering system this is  just something again that i like to see okay but   this is where you know you can really get creative  you can see think about what do you want to know   coming out of the p l or what expenses would you  like to see grouped together so here i have all my   payroll expenses grouped together and then i have  my banking interests and service charges together   and then i have insurance together and then  professional service fees together office expenses   all together you know rent repairs maintenance  cleaning office phone cell phone internet you   know all of these things make sense for them to be  lumped together so that you could have a very good   feel for how much your facilities are costing  you office supplies and materials postage   you know the these are just you know  all of your travel all lumped together   and again this is going to change for every  single organization so what i'm giving you here   is just a super basic template that you can take  and customize to your exact needs all right so   definitely leverage the help i've given you some  best practices tips over here but leverage this   and give it to your bookkeeper give it to your  accountant or work with a professional to help you   if you feel like your chart of accounts or your  financial statements just really aren't making   sense or it's not giving you the information you'd  really like to see it makes sense to maybe look at   your chart of accounts and see how you can improve  your overall reporting and ease of bookkeeping all   right well i hope that was helpful if you have any  questions please put them in the comment section   below and then also grab a copy of your chart of  accounts and use it how you see fit thank you bye

Channel: Clara CFO Group

Views: 90,197

Keywords: chart of accounts, quickbooks, quickbooks online, chart of accounts explained, chart of accounts in quickbooks, what is a chart of accounts, accounting best practice, accounting tips, chart of accounts tips, example chart of accounts, update chart of accounts, example COA, chart of accounts mapping, customize chart of accounts, QBO COA, QBO accounts, update qbo accounts, QBO account names, rename accounts in QBO, numbering accounts in quickbooks, account numbers in qbo

Id: mkQWUzK-pGg

Length: 15min 22sec (922 seconds)

Published: Fri Mar 04 2022