How to Set Up the Chart of Accounts in QuickBooks Online

Cody Cromwell
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The Importance of Setting Up the Chart of Accounts

By setting up your Chart of Accounts the right way, you can improve your financial records tremendously. By using the individual chart of accounts in your QuickBooks Online accounting software, you can customize it to take advantage of your business’s individual needs and make your financial records easy to understand and easy to manage.

Some of the benefits you can enjoy from using the QuickBooks Chart of Accounts to streamline your records include:

  • Quick and easy access to your financial information
  • Striking the right balance between profitability and flexibility
  • Better monitoring of profit and loss
  • Identifying where money is being spent and recovered

Setting up your Chart of Accounts in QuickBooks Online is an easy way to ensure your business’s records are up-to-date and easy to manage. In this post, we’re going to take a look at the Chart of Accounts in QuickBooks, how to set up your Chart of Accounts in QuickBooks Online and the three types of chart of accounts in QuickBooks Online.

The Chart of Accounts in QuickBooks Online

QuickBooks Online does not offer you two separate types of Chart of Accounts, but the actual setup depends on how you’re using QuickBooks in your business.

Review Your QuickBooks Online Chart of Accounts List

Your Chart of Accounts is a collection of accounts that QuickBooks Online has linked to your business. Each Chart of Accounts contains a list of related accounts, such as the Products or Customers Accounts. If you have ever been able to set up a Chart of Accounts, you can review the list of accounts in that group below. To get a copy of your Chart of Accounts, go to the Lists menu (the tab at the top of QuickBooks Online), select Lists and select Chart of Accounts. Your Chart of Accounts will appear in alphabetical order. From here, you can review all of the accounts on your list. If you want to print your Chart of Accounts, click the Print button at the top right corner of your screen.

QuickBooks Online Account Types and Detail Types

The Chart of Accounts is essential for any small business owner to keep on track of specific categories and amounts of financial transactions. QuickBooks Online contains all the tools and features needed for creating and monitoring accounts and chart of accounts. The definition of accounts and chart of accounts differ from different accounting software as they relate to a business. With QuickBooks Online, account types are divided into three types: detail types, class types and conversion types. Class types are accounts that are tracked at a high level and have different transactions associated with them in a specific time and period. Conversion types are high-level balances that have different postings across time. Detail types display detailed transactions for a specific account that are grouped for analysis of income and expense.

The three types vary in complexity and in use depending on the transactions recorded in them. The following is an in-depth explanation of quickbooks classes and details.

Major Account Types – Major account types are usually tracked at the most high level. They include interest income, interest expense, operating, tax and fixed asset accounts.

Class Accounts – Class accounts are high-level accounts that contain detailed transactions prompted by a common characteristic. The following are the major class accounts recorded in Quickbooks: income, expense, petty cash, inventory, payroll, sales, profit center and other.

How to View and Print Your Chart of Accounts

The Chart of Accounts can be accessed easily from the Chart of Accounts option under the Sales menu.

The Chart of Accounts is the accounting backbone of QuickBooks Online. It helps you track the money that comes in and goes out of your business. It also helps you manage sales and purchases, pay bills, and find and pay your employees.

The Chart of Accounts is also a link to your other company information, including:

  • Financial Statements
  • Company Profile
  • Company Chart of Accounts
  • Vendor/Client List
  • Sales Order Entry
  • Sales Tax
  • Employee List
  • Payroll

With the Chart of Accounts and the other company information incorporated into your company file, your business can easily be brought up to speed. With just a few mouse clicks, you can access the funds, items, and other accounting records.

The chart of accounts is where you track transactions, show costs, and keep your income and expenses. Each account you use in your chart of accounts is called a business transaction.

QuickBooks Online is a little different than other programs in that it uses the Chart of Accounts to keep track of your income and expenses. Whenever you receive money for your business, an internal expense account debits that account by the amount you received. It also credits that account for the money you spend for each expense transaction. It debits the incoming account and credits the outgoing account for all the sales you make.

Suggestions for Your Chart of Accounts

Every chart of accounts is different, but they all help you manage your transactions from the perspective of the business. A chart of accounts should meet the following criteria:

It should be simple to understand, and you should be able to easily tell what is included and what is not included in a chart of accounts.

A single chart of accounts should not be used for multiple businesses. Transfer transactions – which transfer money between accounts – might cause your chart of accounts to change, so a separate set of accounts should be kept for each business.

The chart of accounts should account for the transactions that you expect to have. If you do not expect to have a certain type of transaction, it will not be created in your chart of accounts and any unused lines might not get used the next time the chart of accounts is set up.

The chart of accounts should be able to be filled in manually, but you should also be able to easily print only the lines for which you want to be printed.

The chart of accounts should allocate the correct expense type to expense items – i.e. you should be able to see whether an expense item is a fixed expense, or whether it can be adjustable.

If you use business rules, closed items do not count towards your inventory or assets. They are all allocated to cost of goods sold.

How to Add an Account to the Chart of Accounts List

An account is one of the central objects of the chart of accounts. Accounts help you to track your business’s revenue and expenses. For example, if you have a business that sells products and you purchase materials for the products, you will need to create an account for the materials and a second one for the sales. Elaborating on a simple example, creating an account and adding it to the chart of accounts list will help you:

  • Disassociate an expense with any assets used to produce goods or service
  • Track any sales, discounts and payments
  • Keep track of the purchase of a product and the money spent or credited
  • Keep track of the cost of returning a product and the money returned
  • Determine if a cost may be direct or indirect
  • Identify if a cost may be inventory or a cost of goods sold
  • Separate fixed costs from operating expenses
  • Separate selling, accounting and administrative expenses from operating expenses
  • Collapse similar accounts, if required
  • Identify accounts that do not contain sufficient information for the company to prepare its financial statements
  • Collect all the account codes used for products, costs and expenses
  • Identify which accounts are direct expenses and which are indirect expenses

How to Edit an Account in the Chart of Accounts List

To edit an account on the Chart of Accounts list, follow these steps:

In the QuickBooks Online window, click on the Chart of Accounts tab.

Click the Edit button.

Click on the checkmark next to the account you want to edit.

Edit your changes.

Click on the Set button.

Click on the Chart of Accounts List tab.

Click on Repeat > Save values.

Click Save.

How to Delete an Account in the Chart of Accounts List

If you’ve ever created an account in QuickBooks and now want to delete it, you can certainly do this! But be careful when deleting an account in QuickBooks – make sure you’ve entered the exact transaction that you’re deleting. In other words, you can’t click on an account in the chart of accounts and then on the Delete button.

To delete a transaction, go to the Upgrade Company window. You can find transactions in the Upgrade Company window through either the Find Transactions feature or the Records Center. Then select and click on the account you want to delete.

How to Import Accounts to the Chart of Accounts List

Inventory or inventory items are purchased goods and materials held for sale. Because QuickBooks Online calculates the costs of inventory items when they’re sold, transactions that include inventory appear in your register with negative amounts. For example, when you sell a product, the purchase price you pay to get it enters in the register. But the cost of the product is removed from your balance sheet account (Cost of goods sold expense) and added to the inventory account (a cost of goods inventory account) to show the difference between the income from the sale and the cost of inventory items you sold. That’s why you see negative numbers in your income and balance sheet accounts when inventory items are sold.

The other type of transactions that appear in your register with negative amounts are your payroll transactions or your payables transactions. That’s because when you pay your employees you’re adding the payments to the accrued liabilities expense account you’ve created, and you’re removing the payments from the income account (Payroll expense or Payables expense). The transactions with negative amounts show the difference between the income you earned from your business and the expenses you incurred.

Prepare Your Spreadsheet

If you use a spreadsheet for your QuickBooks file then you can import your spreadsheet into QuickBooks and you can manually enter your transactions. If you use a paper Inventory Worksheet or want to use a spreadsheet for your Chart of Accounts, then you can download a template for QuickBooks (The template uses the same column names and account numbers as the Inventory Worksheet).

Setting up QuickBooks Online will not allow you to automatically import a spreadsheet, but you can use a spreadsheet to create your Chart of Accounts.

Import Your Spreadsheet

To import the files, follow these steps:

Step 1. Go to the account register.

Step 2. Under the chart of accounts, click the add/link a file button.

Step 3. Locate and click on the file you want to link.

Step 4. Click the link to open.

Step 5. If the file is a spreadsheet, click import.

Step 6. If the file is a spreadsheet, there will be a confirmation message telling you to copy and paste.

Step 7. Click Yes to get your data.

Step 8. After the transactions load, you will have the option to name the account register.

You can also use the dropdown button or click on the options. You can choose the name or the number of categories.

Wrap Up

You make a lot of things in your business and as an entrepreneur, you want to be sure that all of that work is put into the right expense accounts. There is a lot to be said for tracking expenses, but not every expense is the same.

For example, in a startup company, you are using a lot of things that are only consumed for a short period of time. For example, the IT expenses, the office rent, and the rent are only consumed for the time being.

You don’t want to create for those expenses the same expenses which are used by others companies for long periods.

As you go higher, it is a bit understandable as by being a startup company, you don’t have huge and expensive office. You can easily create the expenses for rent and rent related expenses for few months.

If you have a fixed asset like a camera or a printer, you can create the expenses at the beginning of the term and you will only need to change the amount in the next term of creating if the value of your asset changes.

As you continue, you need to create different expenses for expenses like the income tax, starting in the initial two months of the business and then create again as the value changes monthly or quarterly.