What Is a Chart of Accounts?
Ask the Accountant…
Question: What is a chart of accounts, and how is that different from items that I order?
Answer: A chart of accounts is a list of financial accounts set up in a company to record financial transactions.
Accounts fall into these six general categories:
- ASSETS (What you own, such as cash)
- LIABILITIES (What you owe, such as credit card debt)
- EQUITY (Assets-liabilities, or the part of the company that’s truly yours after debts are paid)
- COST OF GOODS SOLD (in our industry, product costs)
- EXPENSES (general operating expenses, such as telephone expenses)
When your financial transactions are recorded into your accounting system, they are assigned or recorded into the appropriate categories. For example, paying your telephone bill would reduce your checking account and also be recorded into your telephone expense account.
When all the transactions for the year are recorded and reconciled, you can produce the financial statements necessary to provide your accountant to complete your taxes.
Items are different from accounts in your chart of accounts. Items are what you sell, such as BIC Clic Stics. When you sell an item, its financial details are allocated to the appropriate accounts in your chart of accounts.
This can occur if you transpose numbers on a street address to a street number that doesn’t exist, or merely misspell a street name. Unfortunately, you will not get an error message in QBO—you will just under-collect the amount of sales tax. Regardless of which you use, the onus for correct sales tax is on you.
Please email your questions to Harriet at Ask The Accountant.
QuickBooks Premier and Enterprise can be modified to better serve ad specialty distributors. Harriet Gatter is a QuickBooks ProAdvisor, a former accounting professor and a former ad specialty distributor. She advises ad specialty distributors to use QuickBooks Premier and Enterprise, often in conjunction with other industry-specific software, to manage the complexities of the ad specialty business, with the results being time saved, errors eliminated and an overall accurate accounting of your business. Contact her at email@example.com.