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Understand your chart of accounts

The chart of accounts is the backbone of your accounting system. That's why it's so important to understand how it works.

Think of a chart of accounts as a file cabinet, with a file for each type of accounting information you want to track. For example, if you need to know how much money you spend on postage, you'll set up a file (an account in the chart of accounts) for Postage Expense.

Although you aren't required to use account numbers in your QuickBooks chart of accounts, your accountant may recommend that you do so.

What are standard chart of accounts number ranges?

Standard chart of accounts number ranges

Although you aren't required to use account numbers in your chart of accounts in QuickBooks, your accountant may recommend that you do so. Here are standard chart of accounts number ranges:

Assets

Assets are things your company owns. They're usually divided into two groups–current assets and fixed assets:

  • Current assets are generally numbered from 1000 – 1499. These are assets that you can easily turn into cash, such as checking accounts, savings accounts, money market and CD accounts, accounts receivable, and inventory.

  • Fixed assets are usually numbered from 1500 – 1999. These are items with a minimum cost (for example, $500) that you would have to sell to generate cash. Automobiles, equipment, and land are examples of fixed assets. For example, suppose last year your company bought a new computer system for $1,100. Since the cost of the system was more than $500, the purchase was entered to an asset account rather than to an expense account. Consult your accountant or tax preparer to determine the actual minimum cost you should use to determine fixed assets.

Liabilities

Liabilities are funds your company owes. For example, say your company borrowed $20,000 from the bank. When the $20,000 loan was deposited to the checking account, the deposit was entered in the liability account Bank Loans, not an income account.

Income or Revenue

"Income" or "revenue" is the income you get from your normal day-to-day business tasks, such as professional fees, income for services rendered, reimbursable expenses, or products you sell.

Overhead Costs or Expenses

Overhead Costs, or Expenses, are fixed costs you have even if you run out of work. Examples include rent, telephone, insurance, and utilities.

Other Income

Other Income is income you earn outside the normal way you do business, including interest income, gain on the sale of an asset, insurance settlement, a stock sale, or rents from buildings you own.

Other Expense

Other Expense is an expense that's outside of your normal business, such as a loss on the sale of an asset or stockbroker fees.

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