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Setting up chart of account in QuickBooks Online

Steps for set up

Setting up a Chart of Accounts (COA) in QuickBooks Online (QBO) is crucial for organizing your financial records and tracking income, expenses, and assets effectively. Here's a step-by-step guide:

Step 1: Log in to QuickBooks Online

  1. Open your web browser and log in to your QuickBooks Online account.
  2. Navigate to your company dashboard.

Step 2: Access the Chart of Accounts

  1. From the left-hand menu, click on Settings (gear icon) in the upper-right corner.
  2. Under the "Your Company" section, select Chart of Accounts.

Step 3: Review Existing Accounts

  1. QuickBooks Online creates a default chart of accounts based on your business type during the initial setup.
  2. Scroll through the list to review the existing accounts.
  3. If needed, you can modify or delete accounts that don’t align with your specific business needs.

Step 4: Add a New Account

  1. Click the New button (or Add Account, depending on your QBO version).
  2. Fill in the following details:
    • Category Type: Select the main type of account (e.g., Assets, Liabilities, Income, or Expenses).
    • Detail Type: Choose a more specific subcategory that matches the account purpose.
    • Name: Enter a descriptive name for the account (e.g., "Office Supplies" or "Bank Loans").
    • Description (optional): Add a note or further details about the account.
    • Balance (if applicable): Enter the opening balance for the account if it's already active.
  3. Click Save and Close or Save and New if you want to add another account.

Step 5: Edit or Delete Existing Accounts

  1. Find the account you want to edit or delete in the Chart of Accounts list.
  2. Click the dropdown menu in the Action column next to the account.
    • Select Edit to modify account details.
    • Select Delete if the account is no longer needed. QuickBooks may require you to reassign transactions if the account is active.

Step 6: Customize Accounts

  1. Customize accounts to reflect the unique needs of your business.
    • Example: Create separate income accounts for different revenue streams (e.g., "Service Income" and "Product Sales").
  2. Use sub-accounts to add more detail while keeping your chart streamlined:
    • Check the Is sub-account box and assign the main (parent) account.

Step 7: Reconcile Accounts

  1. Once all accounts are added and customized, reconcile them to ensure the balances match your bank or other financial records.
  2. Go to Accounting > Reconcile and follow the reconciliation steps.

Step 8: Regularly Update and Review

  1. Regularly review your Chart of Accounts to ensure it stays up-to-date with your business needs.
  2. Add or deactivate accounts as your business grows or changes.

Tips for Managing Your Chart of Accounts

  • Keep it simple: Avoid creating too many accounts, which can make your records overwhelming.
  • Be specific: Use clear and descriptive names for accounts to avoid confusion.
  • Use sub-accounts: This keeps the COA organized while providing detailed tracking.

Advanced features of set up Chart of Accounts

The advanced features in QuickBooks Online's Chart of Accounts (COA) offer enhanced customization, organization, and reporting capabilities. These features are particularly helpful for businesses with more complex accounting needs. Here’s a step-by-step guide to exploring and leveraging the advanced features of COA:

Step 1: Enable Advanced Features in QuickBooks Online

  1. Go to Settings (gear icon) in the upper-right corner.
  2. Under Your Company, select Account and Settings.
  3. Navigate to the Advanced tab.
  4. Review and enable features such as:
    • Chart of Accounts Numbers: Helps organize and identify accounts more efficiently.
    • Categories (Classes and Locations): Enables class tracking and location-based reporting.
  5. Click Save to apply changes.

Step 2: Turn On Account Numbers

  1. In the Advanced tab, locate the Chart of Accounts section.
  2. Check the box for Enable account numbers.
  3. Save the changes.
  4. Go back to the Chart of Accounts by clicking Settings > Chart of Accounts.
  5. Edit each account to assign a unique account number:
    • Click the Edit button (dropdown under the Action column).
    • Enter an account number in the Number field.
    • Save changes.

Tip: Use a numbering system based on standard accounting practices:

  • Assets: 1000–1999
  • Liabilities: 2000–2999
  • Equity: 3000–3999
  • Income: 4000–4999
  • Expenses: 5000–9999

Step 3: Create Sub-Accounts

  1. Go to Settings > Chart of Accounts.
  2. Click New to create a new account or edit an existing one.
  3. Check the box for Is sub-account.
  4. Select a parent account from the dropdown menu.
  5. Complete the account details and click Save and Close.

Example: Create a "Utilities" parent account with sub-accounts for "Electricity," "Water," and "Internet."

Step 4: Use Classes and Locations for Advanced Tracking

  1. Go to Settings > Account and Settings > Advanced.
  2. Under Categories, enable Track classes and/or Track locations.
  3. Save changes.
  4. When creating or editing a transaction, assign a Class or Location for detailed tracking.

Example: Use Classes to track income/expenses by department (e.g., Marketing, Sales) and Locations for tracking by branch or region.

Step 5: Manage Account Hierarchies

  1. Use parent and sub-accounts to create an organized hierarchy.
  2. Structure the COA to reflect your business operations.
    • Example: Group all payroll-related accounts under a "Payroll" parent account.

Tip: Avoid creating too many levels of sub-accounts to keep your COA manageable.

Step 6: Customize COA for Tax Filing

  1. Identify accounts relevant for tax reporting (e.g., sales tax, payroll tax).
  2. Label accounts clearly for easy recognition during tax season.
  3. If needed, consult your accountant for advice on account categories.

Step 7: Use Account-Based Reporting

  1. Run detailed reports by navigating to Reports > Account List.
  2. Customize reports to show data for specific accounts, classes, or locations.
  3. Export reports for further analysis or sharing with stakeholders.

Step 8: Archive or Deactivate Unused Accounts

  1. Find the account in the Chart of Accounts list.
  2. Click the dropdown menu in the Action column and select Make Inactive.
  3. Inactive accounts are hidden from the active list but retained for historical reporting.

Step 9: Integrate Third-Party Apps

  1. Connect third-party apps (e.g., inventory management, project tracking) to synchronize with the COA.
  2. Navigate to Apps in the left-hand menu and browse compatible integrations.

Step 10: Regularly Audit and Optimize

  1. Periodically review your Chart of Accounts to ensure accuracy and relevance.
  2. Remove or consolidate redundant accounts.
  3. Work with your accountant to align the COA with evolving business needs.

Tips for Advanced COA Management

  • Automation: Use rules in QuickBooks to categorize transactions automatically into specific accounts.
  • Segmentation: Leverage classes and locations to enhance financial segmentation for better decision-making.
  • Accuracy: Regularly reconcile accounts and ensure that sub-accounts roll up correctly to parent accounts.
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