If you have heard about the popular game Jenga, then it will be easy to comprehend what chart of accounts is.
Similar to the game, if a section of your business is removed, it needs to be added back someplace else.
When you are completely aware of how to keep your business’s chart of accounts in a systematic manner, tracking your financial information will become very easy.
In a broader sense, the chart of accounts is a record of the account number along with the names, which are important for your company. In a chart of accounts, there are four categories, namely:
- Asset Accounts
- Liability Accounts
- Income Accounts
- Expenses Accounts
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Why do you need to Setup a Chart of Accounts in QuickBooks?
Some professionals refer chart of accounts as the backbone of an enterprise, since almost all the transactions flow via it.
The significance of a chart of accounts can be comprehended with the accuracy of reports. You will not have accurate reports if your chart of accounts is not properly constructed or if the transactions are classified incorrectly.
This is a huge problem, especially when you wish to:
- Organize taxes- Your income tax return will not show the reportable income and expenses that can be cut off if the transactions are not in sync with the right classifications.
- Apply for business finances, or lure in investor, trying to sell off your specific company.
- Track your finances- Getting the right position of the income and expenses of your business will become difficult, and thus, a major issue will emerge when it comes to preparing the company’s fiscal policy and future planning.
Steps for Setup a Chart of Accounts in QuickBooks
Note: QuickBooks prepares your chart of accounts automatically, depending on the type of industry and company you select while preparing your company file.
Step 1: Go to settings and then choose Lists and select Chart of Accounts.
Step 2: Select the Account button, and click on the Account Menu Option New.
Step 3: Add a new account
Step 4: Fill up the Account Type buttons
Step 5: Select Continue
Step 6: Select the sub-account
Step 7: Enter Bank account details who use the same currency
Step 8: Save the New Account
With the growth of your business, the need for precise, quick, and authentic reporting becomes important and with the help of your chart of accounts, this becomes easy.
From keeping your business accounting error-free to improving financial health, setting up a chart of accounts can help you take crucial business decisions to move ahead.
Irrespective of whether you are an entrepreneur who has just started a business or a company owner willing to streamline your business, a chart of accounts is imperative to climb the ladder of success.