Understanding and organizing your QuickBooks Online Chart of Accounts is essential to accurately tracking your business’s financial health. In this article, we’ll explore some best practices for setting up your Chart of Accounts in QuickBooks Online, the importance of the order, and the benefits of maintaining a well-structured CoA. This is a high level overview with a detailed template chart of accounts that you can download at the end.
The Balance Sheet Order and Its Importance
The order of accounts in your balance sheet is crucial for presenting an accurate representation of your company’s financial position. The balance sheet order is as follows:
- Assets (10xxx – 19xxx)
- Liabilities (20xxx – 29xxx)
- Equity (3xxxx)
Generally speaking, the balance sheet assets are ordered based in order of their liquidity, which refers to how easily an asset can be converted into cash. This arrangement is important because it provides a clear understanding of the company’s most accessible resources in case of financial obligations or opportunities.
For example, a checking account is more liquid than a savings account, as it allows for more frequent and immediate withdrawals. A savings account is considered more liquid than a Certificate of Deposit (CD), which usually has a fixed term and early withdrawal penalties. Money loaned out to others is even less liquid, as it depends on the borrower’s repayment schedule.
Similarly, liabilities on the balance sheet are ordered by their due date, with short-term liabilities listed before long-term liabilities. Accounts payable and credit card bills, which are typically due within 30-90 days, come before long-term loans that may have repayment schedules spanning multiple years. Organizing liabilities in this manner helps you identify which financial obligations need to be addressed first and can assist in cash flow management.
This order is important because it provides a clear snapshot of your business’s assets, liabilities, and equity at a specific point in time. A well-organized balance sheet helps you understand your financial position and make informed decisions.
Organizing Your Balance Sheet Accounts in QuickBooks Online
In QuickBooks Online, I would typically organize a general ledger as follows:
- 10xxx: Checking and savings accounts
- 11xxx: Accounts receivable
- 14xxx: Accrued revenue (if on accrual basis)
- 15xxx: Security Deposits
- 16xxx: Due from (to)
- 17xxx: Fixed assets
- 17999: Accumulated depreciation
- 18xxx: Notes Receivable
- 19xxx: Intangible assets
- 19999: Accumulated amortization
- 20000: Accounts payable
- 3xxxx: Equities
Understanding Profit and Loss Statement GL Accounts
The Profit and Loss Statement (P&L) summarizes your company’s revenues, costs, and expenses over a specific period. Organizing your P&L General Ledger accounts is vital for assessing your business’s profitability and identifying areas for improvement. The recommended order for these accounts is:
- 4xxxx: Revenues
- 5xxxx: Cost of Goods Sold
- 60xxx: Payroll Expenses
- 61xxx: General and Administrative
- 62xxx: Sales and Marketing
- 63xxx: Research and Development
- 69999: Uncategorized
- 7xxxx: Interest Income
- 75xxx: Gain (loss) on disposal of asset
- 76xxx: Other Income
- 8xxxx: Other Expense
Having enough detail in your P&L accounts is critical for understanding your business’s performance. However, too much detail can be overwhelming and difficult to manage. Striking the right balance will allow you to maintain a clear view of your finances without unnecessary complexity.
The above list is not exhaustive. For example, there should be sub accounts located in 61xxx General and Administrative account. Rent, office expense, online services, dues and subscriptions and more will fall under G&A. If you want the full list you can download my template chart of accounts below that will have all of the General Ledger accounts that I use for all my clients.
Free Chart of Accounts Template for Service-Based Businesses
This Chart of Accounts Template can be easily imported into QuickBooks Online and customized to fit your unique needs. To access this template, simply click here.
If you decide you don’t want to set this up on your own or are having trouble, reach out to me Here and we can discuss ongoing accounting services.