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QuickBooks Tip - The Importance of Account Types

QuickBooks Tip - The Importance of Account Types

Sep 11, 2017

The purpose of the chart of accounts is to summarize where money comes from and where it goes. Plain and simple right? Not always, setting up the chart of accounts is crucial when it comes to keeping your financial information in order.

The “account type” is the most important part of setting up the chart of accounts, it helps create reports like a balance sheet and Profit and Loss statement.

The following are “account types” and samples of each:

  1. Bank – checking account, savings account and petty cash.
  2. Accounts Receivable – Accounts receivable is usually the only one.
  3. Other Current Assets – Inventory, short term loan to an employee, deposit to buy property.
  4. Fixed Assets – the Purchase of land, buildings, equipment, vehicles.
  5. Other Assets – Security Deposit on rented property, long term loans.
  6. Accounts Payable – Accounts payable is usually the only one.
  7. Credit Card – All credit cards should be set up using this “account type” I recommend talking to your accountant on the set up.
  8. Loan – All loans from banks should be under this “account type.”
  9. Other Current Liabilities – payroll liability accounts, sales tax liability.
  10. Long Term Liabilities – deposits from customers, loans from owners.
  11. Income – sales, fee income, rental income.
  12. Cost of Goods Sold – expenses related directly to what is being sold. Labor, materials, subcontractors.
  13. Expenses – overhead costs of doing business. Rent expense, office supplies, advertising.
  14. Other income – interest income, dividend income, and miscellaneous income not related to the business.
  15. Other expenses – Interest expense, federal and state income taxes.

If you set up your account types correctly, it will go a long way in helping you with your financial reporting.

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Dean Klemenz
Dean Klemenz
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