Thursday, February 25, 2016

Setting Up a Chart of Accounts

If you’ve just started running a business and keeping your company’s books, all this talk of accounts, credits, and debits might have you flummoxed. Accounting is a cross between mathematics and the mystical arts; its goal is to record and report the financial performance of an organization. The end result of bookkeeping and accounting is a set of financial statements (page 448), but the starting point is the chart of accounts.

In accounting, an account is more than a real-world account you have at a financial institution; it’s like a bucket for holding money used for a specific purpose. When you earn money, you document those earnings in an income account, just as you might toss the change from a day’s take at the lemonade stand into the jar on your desk. When you buy supplies for your business, that expense shows up in an expense account that works a lot like the shoebox you throw receipts into. If you buy a building, its value ends up in an asset account. And if you borrow money to buy that building, the mortgage owed shows up in a liability account.

Accounts come in a variety of types to reflect whether you’ve earned or spent money, whether you own something or owe money to someone else, as well as a few other financial situations. Your chart of accounts is a list of all the accounts you use to track money in your business.
Neophytes and experienced business folks alike will be relieved to know that you don’t have to build a chart of accounts from scratch in QuickBooks. This chapter explains how to get a ready-made chart of accounts for your business and what to do with it once you’ve got it. If you want to add or modify accounts in your chart of accounts, you’ll learn how to do that, too.

Note:Industry-specific Premier editions of QuickBooks include a chart of accounts, an Item List, Payroll items, and preferences already tuned to your industry (such as construction, manufacturing, nonprofit, professional services, or retail). The industry-specific editions also have features unique to each industry, like the Contractor edition’s enhanced job costing. These features may save you time during setup and in your day-to-day bookkeeping, but you have to decide whether you want to spend a few hundred dollars more than the QuickBooks Pro price tag to get them.

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