If you’ve just started running a business and keeping books, all this talk of credits, debits, and accounts might have you flummoxed. Accounting is a cross between mathematics and the mystical arts that records and reports the financial performance of an organization. The end result of bookkeeping and accounting is a set of financial statements (The Profit & Loss Report), but the starting point is the chart of accounts.
In accounting, an account is more than an account you have at a financial institution; it’s like a bucket for holding money. When you earn money, you document those earnings in an income account, just as you might toss the day’s take at the lemonade stand into the jar on your desk. When you buy supplies for your business, that expense shows up in an expense account like the receipts you stuff in your briefcase. If you buy a building, its value ends up in an asset account. And if you borrow money to buy that building, the mortgage owed shows up in a liability account.
Accounts come in a variety of types to reflect whether you’ve earned or spent money, whether you own something or owe money to someone else, as well as a few other financial situations. The chart of accounts is a list of all the accounts you use to track money in your business and what type each one is.
Neophytes and experienced business folks alike will be relieved to know that no one has to build a chart of accounts from scratch in QuickBooks. This chapter explains ...