How to Customize Your Chart of Accounts in QuickBooks (And Why It Matters)
Managing your small business finances starts with a well-organized chart of accounts (COA). Think of your COA as a roadmap for tracking every dollar that enters and leaves your business. While QuickBooks Online (QBO) provides a default chart of accounts, it may not reflect the unique needs of your business. Customizing your COA can enhance your financial clarity, improve tax preparation, and save you countless hours.
In this blog, we’ll dive deep into what the chart of accounts is, how customizing it helps, and how you can create a system that works for your business.
What is the Chart of Accounts?
The chart of accounts is a list of all the categories used to record your business’s financial transactions. These categories are divided into five main types:
Assets: What your business owns (e.g., equipment, bank accounts).
Liabilities: What your business owes (e.g., loans, unpaid bills).
Equity: Owner’s investment in the business.
Income: Revenue your business earns.
Expenses: Costs related to operating your business.
Every time you record a transaction in QuickBooks, you assign it to one of these accounts. The structure of your chart of accounts determines how well you can track and report on your business’s performance.
Why Customizing Your Chart of Accounts is Helpful
A default COA might work for a general business, but it may not capture the specifics of your operations. For example, if you run a construction business, you’ll need categories for equipment rentals, subcontractor payments, and materials—accounts that might not exist in a generic setup.
Here’s how customizing your COA helps:
Improved Reporting: Customized accounts let you generate more relevant financial reports, such as tracking project-specific expenses.
Tax Efficiency: Tailored categories make it easier to identify tax-deductible expenses and comply with industry-specific tax regulations.
Accurate Budgeting: By breaking down expenses into detailed categories, you can monitor spending trends and manage your budget more effectively.
Time Savings: Organized accounts reduce the time spent searching for financial information, particularly during tax season or audits.
How to Customize Your Chart of Accounts in QuickBooks Online
Customizing your COA doesn’t have to be overwhelming. Here’s a step-by-step guide to get you started:
Step 1: Access the Chart of Accounts
Log into QuickBooks Online.
Click on the gear icon (⚙️) in the top right corner.
Under “Lists,” select “Chart of Accounts.”
Step 2: Review Existing Accounts
QuickBooks may have already set up accounts based on your business type. Review these to see what fits your needs and what’s missing.
For example, if you operate a landscaping business, QuickBooks might include a generic “Supplies” account. You might want to split this into “Plant Materials” and “Equipment Maintenance” for better reporting.
Step 3: Add New Accounts
Click “New” in the Chart of Accounts window.
Choose the Account Type (e.g., Expense, Income, Asset).
Select a Detail Type (e.g., Office Supplies, Utilities).
Enter a descriptive Name that’s meaningful to your business.
(Optional) Add a Description to clarify the account’s purpose.
Click “Save and Close.”
Example: A construction company might add accounts for:
“Subcontractor Labor” under Expenses
“Job Site Equipment” under Assets
“Project Deposits” under Liabilities
Step 4: Edit or Delete Unnecessary Accounts
You can modify account names or delete unused ones to keep your COA streamlined.
Tip: Be cautious when deleting accounts. If the account has historical transactions, QuickBooks may archive it instead of fully deleting it.
How Customizing Your Chart of Accounts Saves Time
Customizing your COA isn’t just about better organization—it’s a powerful time-saver. Here’s how:
Faster Transaction Entry: With predefined, relevant categories, you won’t have to guess where transactions belong.
Efficient Reporting: You can quickly generate reports without having to sift through irrelevant accounts.
Simplified Tax Preparation: A properly structured COA ensures your tax-deductible expenses are easy to identify, reducing time spent with your accountant.
Example: Imagine you’re reconciling monthly transactions for a power washing business. If you have accounts specifically for “Truck Maintenance” and “Cleaning Supplies,” you can categorize expenses in seconds. Without these accounts, you’d waste time manually sorting through general expense categories.
Additional Tips for Managing Your Chart of Accounts
Avoid Overcomplicating Your COA: While detail is important, having too many accounts can make bookkeeping harder. Focus on categories that provide actionable insights.
Use Account Numbers: QuickBooks allows you to assign numbers to accounts. This can speed up data entry and help with sorting.
Periodically Review Your COA: As your business evolves, your COA should too. Schedule an annual review to ensure your accounts still align with your operations.
Final Thoughts
Customizing your chart of accounts in QuickBooks is one of the best ways to take control of your business finances. It ensures that your records are accurate, your reports are relevant, and your bookkeeping process is efficient.
At DPP Bookkeeping, LLC, we help small businesses like yours get the most out of QuickBooks. Whether you need help setting up your COA or ongoing bookkeeping support, we’re here to guide you every step of the way.
Contact us today to learn more about our services!