Chart of Accounts: How to Add a New Account Correctly
MBE QuickBooks Tips
BY AUTUMN ELLIOTT — QUICKBOOKS PRO ADVISOR
Adding a new account to the Chart of Accounts, sounds basic and you might not think you need help. However, first ask yourself if you really need this account. Keeping your Chart of Accounts simple is always the best. Ask yourself “Would it fit in an existing account? “ and “How important is it that I know the information on this particular account?”
If your answer is that you do want it to be separate on the Chart of Accounts, then it is pretty easy to add a new account. As it is with most things in Quickbooks, there is more than one way to add it. You can always go to your Chart of Accounts and hit “new” or when you are entering in a transaction, you can add the account by entering in a name that does not already exist in the Chart of Accounts. Quickbooks then will ask you if you want to add this account.
Once you decide to add the account, you need to assign the account a type. This is a very important step, as this will determine how this account is classified in your reports.
There are two main types of accounts in the chart of accounts: Balance sheet accounts and Income and expense accounts (tracks the sources of your income and the purpose of each expense).
Balance sheet accounts
Add one bank for every account your company has at a bank or other financial institution.
Accounts receivable (A/R)
Transactions related to the customers who owe you money, including invoices, payments, deposits of payments, refunds, and credit memos.
Other current asset
Assets that are likely to be converted to cash or used up within one year, such as petty cash, notes receivable due within a year, prepaid expenses, and security deposits.
Large purchases (>$2,500) that will be depreciated over time, such as vehicles or equipment.
Any asset that is neither a current asset nor a fixed asset, such as long-term notes receivable.
Accounts payable (A/P)
Transactions related to money you owe, including bills, bill payments, and any credit you have with vendors.
For recording credit card purchases and payments. Should be reconciled like a bank account.
Liabilities that are scheduled to be paid within one year, such as sales tax, payroll taxes, accrued or deferred salaries, and short-term loans.
Liabilities, such as loans or mortgages, that are scheduled to be paid over a period longer than one year.
Owner’s equity (which includes capital investments and drawings)
Income and expense accounts
The main source of operational money earned.
Cost of Goods sold
The cost of goods and materials being purchased, then sold.
Money paid for operational expenses, such as utilities or advertising.
Money received for something other than normal business operations, such as interest income.
Money spent on something other than normal business operations, such as corporate taxes.
Once you have selected your Account Type, have named the account, and assigned it a number (if you are using numbers) you are done in Desktop. However, if you are using QB Online, you will need to assign it a “Detail type” also. For the Detail type, just select the type that is closest to what you want. It is required to assign a detail, but it is not nearly as important as the “Account Type.”
If you have questions about adding a new account or anything else regarding QuickBooks, contact one of our ProAdvisors today!