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What Chart of Accounts Should I Actually Use in Quickbooks (and a template you can download)

What Chart of Accounts Should I Actually Use in Quickbooks (and a template you can download)

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Pilot Team
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July 26, 2023
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What Chart of Accounts Should I Actually Use in Quickbooks (and a template you can download)

A well-structured chart of accounts is the foundation of sound financial infrastructure in any business. It is crucial in organizing financial transactions, providing accurate financial reporting, streamlining bookkeeping processes, and facilitating better decision-making.

In this article, we’ll explore the concept of a chart of accounts and the factors to consider when creating one in QuickBooks. By tailoring your chart of accounts to suit your business needs and industry standards, you can optimize your financial management and ensure a streamlined process. We’ve also included a handy chart of accounts template to download and customize for your business needs. 

Understanding the Chart of Accounts 

The chart of accounts is a hierarchical list of all the accounts used in a business's general ledger. It categorizes financial transactions into various components: assets, liabilities, equity, income, and expenses. By organizing these accounts, a chart of accounts provides a bird's-eye view of your business's financial position.

The main components of a chart of accounts typically include:

  1. Account codes/numbers: Each account is assigned a unique code or number for identification and organization purposes. These become important as your company grows, but you can definitely get by without them in the early days (and we generally recommend not using them on day one, because they can clutter things.)
  2. Account titles: Descriptive names are given to each account to indicate its nature and purpose.
  3. Account types/categories: Accounts are categorized based on their nature, such as assets, liabilities, equity, revenue, and expenses. This helps in grouping similar accounts.
  4. Sub-accounts: Sub-accounts provide further classification and breakdown of specific accounts within a category. For example, sub-accounts can be created under the revenue category for sales revenue, interest income, etc.
  5. Account descriptions: Brief explanations or details about each account.

Factors to Consider When Creating a Chart of Accounts in QuickBooks 

Business Structure and Size

The structure and size of your business plays a significant role in determining the complexity and granularity of your chart of accounts. Small, mid-sized, and larger companies have different requirements based on operational scale and reporting needs. 

The differences in the chart of accounts design and the influence of financial reporting requirements are based on: 

  • Complexity and Granularity: The size and structure of your business determines the level of detail needed in your chart of accounts. Smaller companies simply have fewer accounts to list. Mid-sized and larger corporations often require more accounts to capture diverse transactions and activities. For example, a small business may have a single account for all revenue. In contrast, a larger corporation may have separate accounts for each different type of revenue: subscriptions, onboarding charges, and one-time projects.
  • Operational Scale: The operational scale of your business affects the breadth and depth of accounts in the chart of accounts. As your business grows, you may need to track more specific financial information to support decision-making and analysis.
  • Reporting Requirements: The financial reporting requirements, both internally and externally, significantly impact the design of the chart of accounts. Internal reporting needs may vary based on departmental analysis or cost allocation. External reporting requirements, such as those imposed by investors, banks, or tax authorities, often have specific guidelines that need to be followed. These requirements may include standardized reporting formats, specific account classifications, or industry-specific regulations.
  • Investor and Bank Considerations: If your business seeks investment or financing from external sources, the chart of accounts should align with the expectations of potential investors or lenders. They may require detailed financial statements, compliance with loan covenants, specific account groupings, or industry benchmarks. Adhering to these requirements can enhance the transparency and credibility of your financial reporting, making it more attractive to investors or banks.
  • Tax Compliance: Tax authorities have their reporting requirements, and your chart of accounts should be designed to facilitate accurate tax reporting and compliance. Different tax regulations may necessitate including specific accounts or account groupings to properly track taxable income, deductible expenses, and tax liabilities. Aligning your chart of accounts with tax regulations can help ensure accurate tax filings and minimize the risk of penalties or audits.

The differences in the design of your chart of accounts will be influenced by the complexity and size of your business, operational scale, internal and external reporting requirements, investor and bank considerations, and tax compliance obligations. By carefully considering these factors, you can create a chart of accounts that meets your business’s needs and facilitates accurate and meaningful financial reporting.

Industry-Specific Considerations

Aligning your chart of accounts with your industry's standards and practices is crucial for accurate financial reporting and benchmarking. Examples of industry-specific accounts and categories useful for various sectors like SaaS, eCommerce, and Retail chart of accounts are:

SaaS Chart of Accounts
Number
Account Description
Account Type
4100
Monthly Subscriptions
Subscription Revenue
4200
Annual Subscriptions
Subscription Revenue
4300
Upgrades and Add-ons
Subscription Revenue
4400
Implementation Fees
Implementation and Onboarding
4500
Onboarding Services
Implementation and Onboarding
4600
Training Fees
Implementation and Onboarding
6100
Research and Development Expenses
Operating Expenses
6200
Hosting and Infrastructure Costs
Operating Expenses
6300
Marketing and Advertising Expenses
Operating Expenses
6400
Employee Salaries and Benefits
Operating Expenses
6500
Customer Support Expenses
Operating Expenses
7100
Sales Commissions
Sales and Marketing
7200
Marketing Campaigns
Sales and Marketing
7300
Lead Generation Costs
Sales and Marketing
7400
Trade Show Expenses
Sales and Marketing
1100
Cash on Hand
Assets
1200
Accounts Receivable
Assets
1300
Prepaid Expenses
Assets
1500
Computers and Software
Assets
2100
Accounts Payable
Liabilities
2200
Credit Cards
Liabilities
2300
Accrued Expenses
Liabilities
2400
Payroll Liabilities
Liabilities
2500
Line of Credit
Liabilities
2600
Notes Payable
Liabilities
3100
Common Stock
Equity
3200
Preferred Stock
Equity
3300
Retained Earnings
Equity

eCommerce Chart of Accounts
Number
Account Description
Account Type
4100
Product Sales
Sales and Revenue
4200
Service Sales
Sales and Revenue
4300
Shipping and Handling Fees
Sales and Revenue
4400
Returns and Refunds
Sales and Revenue
5100
Inventory Purchases
Cost of Goods Sold (COGS)
5200
Direct Labor Costs (e.g., fulfillment center staff)
Cost of Goods Sold (COGS)
5300
Packaging and Shipping Materials
Cost of Goods Sold (COGS)
5400
Freight and Shipping Costs
Cost of Goods Sold (COGS)
6100
Website Development and Maintenance
Operating Expenses
6200
Online Advertising and Marketing
Operating Expenses
6300
Payment Processing Fees
Operating Expenses
6400
Customer Support Expenses
Operating Expenses
6500
Hosting and Infrastructure Costs
Operating Expenses
7100
Sales Commissions
Sales and Marketing
7200
Affiliate Marketing Fees
Sales and Marketing
7300
Social Media Advertising Expenses
Sales and Marketing
7400
SEO and SEM Expenses
Sales and Marketing
1100
Cash on Hand
Assets
1200
Accounts Receivable
Assets
1300
Inventory
Assets
1500
Office Equipment
Assets
2100
Accounts Payable
Liabilities
2200
Credit Cards
Liabilities
2300
Accrued Expenses
Liabilities
2400
Payroll Liabilities
Liabilities
2500
Line of Credit
Liabilities
2600
Notes Payable
Liabilities
3100
Common Stock
Equity
3200
Preferred Stock
Equity
3300
Retained Earnings
Equity

Retail Chart of Accounts
Number
Account Description
Account Type
4100
Product Sales
Sales and Revenue
4200
Service Sales
Sales and Revenue
4300
Returns and Allowances
Sales and Revenue
5100
Inventory Purchases
Cost of Goods Sold (COGS)
5200
Direct Labor Costs
Cost of Goods Sold (COGS)
5300
Direct Materials Costs
Cost of Goods Sold (COGS)
5400
Freight and Shipping Costs
Cost of Goods Sold (COGS)
6100
Rent and Lease Expenses
Operating Expenses
6200
Utility Expenses
Operating Expenses
6300
Marketing and Advertising Expenses
Operating Expenses
6400
Employee Wages and Benefits
Operating Expenses
6500
Store Maintenance Expenses
Operating Expenses
1100
Cash on Hand
Assets
1200
Accounts Receivable
Assets
1300
Inventory
Assets
1500
Fixed Assets (such as store equipment)
Assets
2100
Accounts Payable
Liabilities
2200
Credit Cards
Liabilities
2300
Accrued Expenses
Liabilities
2400
Payroll Liabilities
Liabilities
2500
Line of Credit
Liabilities
2600
Notes Payable
Liabilities
3100
Common Stock
Equity
3200
Preferred Stock
Equity
3300
Retained Earnings
Equity

These are just examples, and the specific accounts and categories may vary depending on the nature and complexity of your business.

Considerations when designing a Chart of Accounts

Before creating a chart of accounts, give some thought to what your business actually needs to track. Do you need a super-fine-grained split between seven different types of “Office expenses” or is one category good enough? Are there ways you’d like to slice revenue that will help you analyze the business’s performance? This analysis ensures that your chart of accounts aligns with your business operations and captures all relevant financial information.

Downloadable Template for QuickBooks Chart of Accounts 

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We do the bookkeeping for literally thousands of high-growth startups, ecommerce companies, and more, and this is the chart of accounts we use with our clients. You’re welcome to use it directly or to consider it a starting point to be modified.

And if you still need any help, please get in touch — this is exactly what we do for all of our clients.

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