QuickBooks is an accounting software for SME’s to help track income, expenses, asset and liabilities and ensure that all entries are well posted in it right chart of account heads for easy reconciliation by the users. There are accounting terminologies in QuickBooks that we needs to understand as an accountant or users of the software so we can relate well in our daily transactions and entries.
Below are accounting terminologies in QuickBooks and its uses.
Accounts Receivable (A/R): This is an income owed to your business. Account Receivables is also refers to as an open invoice you haven’t received payment for yet. In QuickBooks Account Receivables is used to track all outstanding payment by our customers.
Account Payables (A/P): This is the amount of money you owe your vendor / Suppliers for goods or services. It’s used when you generate a bill or vendor credit transactions.
With QuickBooks, you can use the following lists to manage and analyze your business:
- Chart of Accounts: This is use for organizing your daily transactions.
- Items List: This is use for tracking the profitability of individual services and products sold.
- Class List: This is also use for tracking different departmental profit centers or divisions.
- Customer Type List: Capability to view your gross profit by user-defined customer types.
The QuickBooks chart of accounts is easy to set up when you have industries experience and a strong accounting background. It might already exist if you created your file with the Express Start. What becomes problematic for some consultant is how to efficiently use or design each of the available list types when you want to segment the business reporting activity in QuickBooks. We will start first with the chart of accounts.
Chart of Accounts
The chart of accounts is a list of asset, liability, equity, income, and expense accounts to which you assign your daily transactions for a good reporting purpose.
This list is one of the most important lists you will use in QuickBooks; it helps you keep your financial information organized. When this list is created with summary accounts and you use the other list types for detail, you can capture information in a timely manner, which will help you make good financial and management decisions for the business.
Account Types: Understanding the charts of accounts isn’t complicated as consultant think it’s because there are 6 account categories used for tracking the financial activities of a business which are Asset, liabilities, equity, income, expenses and cost of sales.
Assets: This are items purchased that will be used in the future to generate inflows to the business or economic benefit.
Bank: This is a medium of payment between the two parties of a business which are the customers and the vendors. It helps to track all payment in and out of the business.
Cash on Hand/Petty Cash: Cash you use for small, “one-off” purchases for your business. Petty cash is the convenient supply of cash you use to make immediate payments for goods and services. For example, instead of writing a check for a small $1.50 purchase for postage, you can pay the postman directly with your petty cash box.
Other current assets: This type of account includes the inventory assets and the Undeposited fund account in QuickBooks that holds customers payment in a single drawer under deposited is been made to the various bank account.
Fixed Assets: This is used to track tangible items or property that has a life span more than a year. Accumulated Depreciation values are also track in this class of account as a negative fixed assets.
Other Assets: This are intangible assets that has a life of more than one year which is not a fixed asset or current assets. Examples are prepayment of expenses, advance to employees.
Liabilities: This are debt a company owed to outsiders, vendors or suppliers. QuickBooks includes Account Payables which has been discussed in the beginning of this article.
Other Current Liabilities: This are debt that are expected to be paid within a year. In QuickBooks, it includes Payroll liabilities, Sales tax payables.
Long Term Liabilities: This is a debt that goes beyond a year.
Equity: The Equity account category holds the owners residual interest in the business after the liabilities are paid. Accounts in this category include owner’s investments and drawings; retained earnings; and opening balance equity which is a default account created by QuickBooks.
Income (Revenue): Money or cash earned from the sale of your products or services is recorded as income. You track this money using income accounts in your QuickBooks operations. Your company may have one or several income accounts depending on the financial data you need to track and analyze. Another category of income is “Other Income,” or income generated from the sale of a product or service outside your normal operations. Interest Income is an example of an Other Income account type.
Cost of Goods Sold: The Cost of Goods Sold account is for costs directly related to producing a service or good for sale. There is a direct relationship between these costs and your revenue. If your company sells a product, your cost of goods sold (COGS) expenses would be the material, labor, and other costs incurred to make and sell the product. By contrast, your office expenses for rent or advertising are considered indirect and should not be posted to the Cost of Goods Sold account type.
Expense: Expense accounts are used to track and categorize what your company is spending. An “Other Expense” account is used for money spent on things outside normal business operations, such as corporate income taxes.
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