How to Set Up a Chart of Accounts in QuickBooks Pro 2017 Part 2
During this QuickBooks Pro 2017 tutorial video, we will show you how to set up long term liability and credit card account, how to create an expense account with a subaccount, and edit an account into a subaccount. We also will talk about equity, income, and cost of goods sold.
Video Transcript:
Welcome back. Let’s go ahead and finish up talking about the Chart of Accounts, so this is part 2. When we left off we were talking about liabilities. I want to go ahead and set a couple of those up for you so you can see how liabilities work.
We’re going to go ahead and use a car payment as an example. We’ll set up the loan for the automobile. I’m going to right click and choose New and something that might be a little confusing is they have a loan option here but if you choose this it assumes a short term liability. So if you know that you have three years left to pay on the vehicle you’re looking for a long term liability. The ones that are not on this list are listed here. So you can see long term liability. And I’ll choose Continue.
Now you can name the account anything you like. I’m going to say Auto Loan. If you wanted to name it your bank name you can certainly do that. If you happen to have a couple of loans at the same bank then you might want to put the last few characters of the account number at the end, whatever works for you.
You do need an opening balance and this is going to be the balance that you owed as of the start date of your company file. So if you still had three years left to pay on the vehicle you want to get that particular figure. Let’s say that it’s $15,000 and again we’ll use our start date or end date in this case as October 1 and we’ll click OK and Save and Close. And now you’ll see you have an Auto Loan and if you look over here it’s a long term liability and you owe $15,000.
Every time you make a payment to pay this auto loan make sure you put it to this account. Something I see often is people will make their car payment and they’ll put it to an expense account. That is incorrect. Your car payment is a liability for your business. And don’t you want this to come down anyway so you know the balance that you owe?
One thing I just want to point out as well. If you notice the account right below it is called Opening Balance Equity. And you can see it’s got a negative number. Any time you create an account like our checking that we did where we had a positive number that number is positive. But when you owe something that’s a negative. So don’t freak out if you see this because that’s actually what your books look like.
So that’s how you’re going to set up all your long term liabilities. Let’s talk next about credit cards.
These are credit cards your company uses to purchase items for the business. It has nothing to do with accepting credit cards for payment from customers. You want to set up each credit card account separately so you can track the expenses on each one. Let me go ahead and set up one for you. I’m just going to right click and choose New. Notice Credit Card is on the list. I’ll choose Credit Card and I’ll Continue.
Now you can name the account anything you want again. You do need an opening balance. Get out your credit card statement from the first month of your company file, the month you started, and put in the ending balance there. I’m going to say $2,356.89 and I’ll pick 10/1 and click OK. And now when I Save and Close you’re going to see that you have a credit card account and you owe $2,356.89. Every time you make a payment towards the credit card put it to this account.
Something I see people do often is they try to put their credit cards in as bills. Do not put your statement in as a bill. That is incorrect. What’ll happen is if you don’t pay the full bill it’ll assume the next time you owe the balance plus whatever the next statement says and it’s just a rotating cycle you’ll never be able to get out of. Credit card statements are not bills. We will be talking about how to handle credit cards in a later module. Just make sure for now that the payments go back to this account so you can see this balance here go down.
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The next type I want to talk to you about are your equity accounts. If you think about the word Equity, equity means equal. You own the business and you take $100 out for whatever you want to do with it. Technically that was already your money it was just in the business account. They call that an owner equity when you take money out or put money into the business. An owner draw is one term for taking money out of the business. Another term is what they call a shareholder distribution. You might see that often. The terminology for putting money into the business is sometimes called an owner contribution or sometimes you’ll hear shareholder equity, that’s another term. So just know what equity is. It’s just equal. You’re not actually making money for the company or spending money. You’re just shifting it from personal to business or vice versa.
Looking down the list you’ll see the next one is Income. There’s one in this list that’s certainly to just keep that one. Just know that if you wanted multiple income accounts you could. Sometimes people want to see where different parts of their money is coming from and you can add as many as you like. Generally though you don’t really want more than three, four or five. It just makes it way to cumbersome. So just have a couple if you need more than one.
Let me mention what Cost of Goods Sold is. That’s the next one you see here where it says Subcontracted Services.
Any time that you have to buy a service or a product to make a service or product to sell in your business that’s called a Cost of Goods Sold. Now I’ve seen people put subcontracted services down where expenses are and that’s certainly okay. It’s going to come out the same way in the end. But I just wanted you to know what Cost of Goods Sold is.
The largest list that you’re going to have here will be your expenses. Now you can see they set up a few for you but you will definitely be adding more to this list and also some subaccounts.
If you look down this list, here’s a good example. They have automobile expense. I would be putting my gas, my carwash, tires, all that stuff in that one account and that’s certainly okay. But if I ever wanted to know how much I spend in gas I wouldn’t be able to pull that out unless I had it as a separate account or a subaccount below. I want to show you how to create subaccounts.
What I’m going to do is on the main account, in this case Automobile Expense, I’m going to create a new account. So I’ll right click and choose New. It’s going to be an expense account and I’ll give it a name. I’m just going to call it Fuel. Here’s where you make a subaccount. You check the box and you say Fuel is a subaccount of Automobile Expense. And I’ll Save and Close.
See how it looks like it’s indented a little bit underneath? That’s how you know it’s a subaccount of Automobile. And you can make as many of those as you like. This will even let you make subaccounts of subaccounts. Don’t go down more than three levels because you’ll get yourself confused. But here’s some others you may want to consider adding.
Insurance is a good example. You might have general liability insurance, you might have automobile insurance, different types of insurance. Maybe make those subaccounts underneath Insurance Expense. Also underneath Professional Fees most of the time I’ll see a subaccount for the accountant and another one for any legal fees. Utilities. You may want to move this Telephone Expense underneath Utilities. The way you would do that is this. I’m going to edit Telephone Expense. So I’ll just right click and this time I’ll choose Edit. I’ll just make it a subaccount of Utilities. That’s all you have to do to fix it. And then when I Save and Close you’ll see now it’s a subaccount. So again you’ll want to add gas and electric. I notice on the list they always put Office Supplies but I never really see Office Expenses. To me supplies are papers, pens, pencils and the expenses would be things like maybe you had to get a permit to do a job, things like that.
Also notice this Ask my Accountant. That’s where you’re going to put things that you really don’t know what to do with until you figure it out or until you ask the accountant.
I would not add an account if it’s a onetime thing. But if you know you’re going to use the account over and over then go ahead and add a subaccount. You want this list to be as detailed as you need it to be, but don’t make it so detailed that no one wants to read it.
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So like I said in the beginning you’re not going to catch all these right away. You might come across one after you’ve been using QuickBooks for a couple of months that you need to add and that’s certainly okay.
Alright let’s go ahead and actually start working and getting some information in QuickBooks so we can see how it works. Let’s go over to module 4 and talk about working with customers and jobs.
Cindy McGuckin
Cindy McGuckin is an IT trainer with over 20 years of experience. Cindy currently manages the IT Training Department at Trident Technical College, she's a Member of the Association of IT Professionals, Charleston, SC chapter and the Treasurer of the South Carolina Association of Continuing Higher Education. Cindy is a Microsoft Office and QuickBooks expert and her online courses have received hundreds of 5-star reviews. Her no-nonsense approach to teaching complicated topics makes her classes engaging and interesting.