If you’re new to bookkeeping, one of the first terms you’ll hear is Chart of Accounts. It may sound technical, but it’s simply a list that organizes all the financial transactions in your business. In QuickBooks, getting this section right sets the stage for clean books and accurate reports.
In this post, we’ll break down what the Chart of Accounts is, why it matters, and how to manage it in QuickBooks Online.
What Is the Chart of Accounts in QuickBooks?
Think of the Chart of Accounts as your bookkeeping map. Every time you record a transaction—whether it’s a sale, an expense, or a loan payment—it gets categorized under an account. These accounts fall under five main types:
• Assets – What your business owns (e.g., bank accounts, equipment)
• Liabilities – What your business owes (e.g., credit cards, loans)
• Equity – Owner’s investment or retained earnings
• Income – Money coming in (e.g., sales, interest income)
• Expenses – Money going out (e.g., rent, software subscriptions)
Each type plays a role in creating your financial statements.
Why the Chart of Accounts Matters
• It keeps your books organized and your reports accurate.
• It helps track how money flows in and out of your business.
• It allows for meaningful insights, like which areas drive profit or incur high costs.
• It ensures your tax preparer can easily prepare your return based on properly categorized data.
Reviewing and Customizing Your Chart of Accounts
QuickBooks Online creates a default Chart of Accounts when you first set up your company. But every business is different—you may want to adjust it to fit your operations.
1. View Your Chart of Accounts
• Click the Gear icon ⚙️
• Select Chart of Accounts under “Your Company”
2. Add New Accounts
Click the New button to create an account. Choose:
• Account Type (e.g., Expense, Income)
• Detail Type (helps clarify the account’s use)
• A name that makes sense for your business (e.g., “Client Gifts” instead of just “Misc Expense”)
3. Edit or Inactivate Accounts
• Use the dropdown arrow next to each account to Edit details or Make Inactive if the account is no longer needed.
• Inactive accounts are hidden but still preserve past transactions—no data is lost.
4. Keep It Simple
• Avoid creating too many overlapping accounts. For example, instead of separate categories for “Lunch with Client” and “Dinner with Client,” use one account: “Meals and Entertainment.”
• Use sub-accounts only if needed for better tracking, like breaking down “Utilities” into “Electricity,” “Water,” and “Telephone services.”
Common Accounts Every Small Business Should Have
Here’s a starting list of accounts most small businesses need:
Income:
• Sales or Services
• Other Income (e.g., interest, credit card rewards received)
Expenses:
• Office Expenses
• Rent or Lease
• Utilities
• Software Subscriptions
• Meals and Entertainment
• Professional Services (e.g., legal, accounting)
Assets:
• Checking Account
• Accounts Receivable
• Equipment or Furniture
Liabilities:
• Credit Card
• Loan Payable
Equity:
• Owner’s Equity
• Owner’s Draw or Distribution
Final Tips
• Review your Chart of Accounts once a year—it’s easy to let unused or unclear accounts pile up.
• Avoid generic names like “Miscellaneous.” Be specific to keep reports meaningful.
• If you’re unsure how to categorize something, flag it and check with your bookkeeper or accountant.
QuickBooks Chart of Accounts Checklist
✔️ Review default Chart of Accounts upon company setup
✔️ Customize account names to match your business needs
✔️ Add missing income or expense categories
✔️ Inactivate unused or irrelevant accounts
✔️ Use sub-accounts only when needed for clarity
✔️ Avoid overly broad or vague account names
✔️ Review and update Chart of Accounts annually
✔️ Confirm all account types are correctly assigned
Note: QuickBooks Online has different versions (e.g., Simple Start, Essentials, Plus, Accountant). Some features or menu labels may vary slightly depending on your subscription level.
If you require additional assistance with your QuickBooks settings, please feel free to contact us.