What is a chart of accounts?
Ask the accountant …
Question: What is a chart of accounts and how is it different from the items I order?
Reply: A chart of accounts is a list of financial accounts set up in a business to record financial transactions.
Accounts fall into these six general categories:
- ASSETS (What you own, like cash)
- LIABILITIES (What you owe, like credit card debt)
- EQUITY (Assets-liabilities, or the part of the business that really belongs to you after the debts are paid)
- COST OF GOODS SOLD (in our industry, product costs)
- EXPENSES (general operating costs, such as telephone costs)
When your financial transactions are recorded in your accounting system, they are assigned or recorded in the appropriate categories. For example, paying your phone bill would reduce your checking account and would also be recorded in your phone expense account.
When all the transactions for the year are recorded and reconciled, you can produce the necessary financial statements to provide to your accountant to complete your taxes.
The items are different from the accounts in your chart of accounts. Items are what you sell, like BIC Clic Stics. When you sell an item, its financial details are assigned to the appropriate accounts in your chart of accounts.
This can happen if you map the numbers of an address to a house number that does not exist, or if you simply misspell a street name. Unfortunately, you won’t get an error message in QBO – you will just collect the sales tax amount. No matter what you use, you are responsible for the correct sales tax.
Please email your questions to Harriet at Ask The Accountant.
QuickBooks Premier and Enterprise can be modified to better serve specialized advertising distributors. Harriet Gatter is a QuickBooks ProAdvisor, former accounting professor and former advertising distributor. She advises advertising distributors to use QuickBooks Premier and Enterprise, often in conjunction with other industry-specific software, to manage the complexities of the advertising business, with the results saving time. , errors eliminated and accurate overall accounting of your business. Contact her at [email protected]