Constantly evolving with the change of company processes, your chart of accounts should be reviewed on an annual basis. Having an organized chart of accounts provides an accurate snapshot of how your business is spending and receiving money. While reviewing, it is crucial to find the balance between having enough accounts that your financials are meaningful, and not too many that you have every vendor setup with their own account.
CATEGORIZING SPECIFIC ACCOUNTS INTO CLASSES IN QUICKBOOKS ONLINE
If you have pages upon pages of overly specific accounts, you may want to utilize the class function in QuickBooks Online (QBO). Classes are much like departments and are a way to organize the data in QuickBooks Online without having to create multiple accounts. For example, you might want to track your travel expenses by department, such as General & Administrative, Marketing or Research & Development. Instead of having multiple travel expense accounts, you can create one expense account and assign each transaction to a specific department utilizing classes in QuickBooks Online.
Examples of how to use classes:
• Not-for-profits – Program Services, General & Administrative, Fundraising
• Departments – Marketing, Research & Development, General & Administrative
• Business Segments
If your accounts are overly general, they become a catch-all for everything-which hinders your decision making because you don’t know where you are even spending your money. “Office Expense” is probably the most over-utilized account and winds up as a dumping ground for transactions. If your chart of accounts includes “Miscellaneous Expense”, you need an immediate change.
ADDING DETAIL BY CREATING SUB-ACCOUNTS
If you find your current accounts do not provide you with enough detail, you may consider utilizing sub-accounts. Sub-accounts can be collapsed or expanded on financial reports in QuickBooks Online-depending on the level of detail you want to make available. For example, you may want a main header account called “Travel” and then have sub-accounts such as Meals, Lodging, Airfare, etc.
Examples of how to use sub-accounts:
Examples of Header Accounts
• Personnel Expenses
• Building and Occupancy
• General and Administrative
Examples of Sub-Accounts
• Personnel Expenses (Header)
– Payroll Taxes
– Health Insurance
– Retirement Plan
– Payroll Fees
ORGANIZING FINANCIAL STATEMENTS BY ACCOUNT NUMBERS
In addition to classes and sub-accounts, utilizing account numbers is a perfect way to organize your accounts on financial statements. Below is a sample account structure that has been adopted as best practice by most bookkeepers:
• 10000-19999 Assets
• 20000-29999 Liabilities
• 30000-39999 Equity
• 40000-49999 Income
• 50000-59999 Cost of Goods Sold
• 60000-69999 Expenses
• 70000-79999 Other Income
• 80000-89999 Other Expenses
• 90000-99999 Income Taxes
Feeling overwhelmed or don’t know where to start? Don’t fret, QuickBooks Online has a sample chart of accounts for most industries to use as a starting point. To see how MCDA CCG, Inc., can help relieve you of the day-to-day accounting while providing a real-time snapshot of your financials, contact an MCDA CCG, Inc., financial advisor or learn more about our outsourced accounting services by visiting us at http://www.mcdaccginc.com. With our unique flexible structures, cost effective pricing, and personalized methods, we can assure your satisfaction by getting you get the service you deserve. In this increasingly unpredictable economy, the time to take charge of your business finances to ensure sustainability is now, contact us today for a consultation!