Microcomputer Accounting Applicationslesson 2 Customizing Quickbooks and the Chart of Accounts

Microcomputer Accounting ApplicationsLesson 2 Customizing QuickBooks and the Chart of Accounts

Note: These comments do not replace the material in the chapter. They are intended to reinforce and highlight important data from the text as well as to review relevant accounting principles. You should always thoroughly read your text while completing the tutorial steps.

Lesson 2 Comments

Chapter 2 introduces you to the Chart of Accounts in QuickBooks.

Recall that the Chart of Accounts is a listing of all accounts used by a company. The Chart of Accounts is broken down into five major categories:

·  Assets

·  Liabilities

·  Equity

·  Revenue (Income)

·  Expenses

Under each of these categories are specific accounts used to record accounting transactions. QuickBooks Chapter 2 identifies some common accounts found under each category. You can also reference Chapter 2 of your principles textbook to review the common accounts under each category. While most companies, regardless of the business type (sole proprietorship, partnership, or corporation), have similar asset, liability, revenue, and expense accounts, the equity accounts will differ for sole proprietorships or partnerships and corporations.

Equity accounts for Sole Proprietorships and Partnerships

Capital-represents amounts invested by owners and increases from net profits

Drawing-represents amounts withdrawn by owners

(The capital and drawing account names are generally preceded by the owner’s name. One capital and drawing account will be set up for each partner of a partnership.)

Equity accounts for Corporations

Capital Stock-represents amount invested by owners (shareholders)

Dividends-represents amounts distributed to owners (shareholders)

Retained Earnings-represents net profits retained in the business

Recall also that these accounts flow to the financial statements to provide various types of information on how a company is performing. Assets, liabilities, and equity accounts appear on the Balance Sheet and indicate a company’s financial position as of a specific date. Revenue and expenses appear on the income statement and denote whether a company is making a profit or a loss.

In this lesson, you will use QuickBooks to edit, add, and delete accounts on the default chart of accounts. You will also create a chart of accounts from scratch. While QuickBooks will generate a chart of accounts for your business based on information given to the program at setup, it is important for accounting professionals to be able to identify and properly categorize the accounts needed by a business.

When you add an account to the chart of accounts, you need to identify the account type (asset, liability, equity, revenue, expense). You will note that QB divides the accounts into more than the traditional five categories. This is a unique feature in QuickBooks and you should make the best choice when assigning account types. You will also enter the account name, number, and description (optional). You will indicate if the account is a subaccount of another account (discussed below) and you will also have an opportunity to identify where the information from this account should appear on your tax returns. QB will use this information later to generate tax reports. You also have the option of leaving the Tax Line as Unassigned.

Accountants commonly use account numbers to identify accounts. When using the QuickBooks Chart of Accounts, you can choose to display or not display the list with account numbers. In this lesson, you will learn how to display account numbers on the chart of accounts.

Because it may be helpful to have a hard copy of your chart of accounts available, you will also learn to print the chart of accounts.

Subaccounts

Something you may not have spent much time with in Principles of Accounting is the use of subaccounts. These are accounts that further break down a parent (or control) account. For example, you may have an account called Insurance Expense. Under that account you have three subaccounts for the following types of insurance: Health, Building, and Disability.

The use of subaccounts provides more effective and efficient use of accounting information. In accounting reports, you may choose to view only the control account (for the insurance example you would see one combined total for all insurance expense) or you may view the details of the subaccounts indicating how much was spent on each insurance category. QuickBooks allows you to easily create subaccounts through which additional accounting data can be generated. NOTE: When assigning tax lines for income tax reports, it is recommended that you assign the parent account to the appropriate tax line. Leave the tax line for the subaccounts as unassigned. Assigning tax lines to both the parent and subaccounts will double-count the income or expense.

In addition to working with the chart of accounts, this chapter discusses using passwords as a security measure to protect your accounting data. Setting passwords for your QuickBooks files is part of a good internal control system.

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