Chart of Accounts in QuickBooks

Chart of Accounts can be a great asset for those of you who have an inclination to shift towards accounting software. A clear understanding of the Chart of accounts helps in the better understanding of the various aspects of implementation, advantages, and applications of the same as and when required. This is further applicable for those people who are working in the field of accounting in offices, have a business of their own, or are freelancers who offer accounting services for individual clients.

This shift is all the better as it will offer the user a better interface and a smooth transition when trying to move from basic software tools like MS Office or Excel to more Accounts-based software like QuickBooks.

Chart of Accounts: What this is all about?

Once you have made up your mind about shifting to an accounting-based software, there are a few aspects of the same that you need to be aware of beforehand. Hence, the ‘CHART OF ACCOUNTS’ is one of the most fundamental concepts of this software that one needs to know of. So, what is the Chart of Accounts all about and what are its applications?

Simply put, the Chart of accounts is defined as the ‘chart’ where all the business and financial activities are accounted for. On a wider level, this is the basic structure of the financial accounts of any  Organization that offers the user with the various overview of the different financial transactions. Basically, this is a list, of all the accounts-related activities of an organization over a certain period of time. This includes: electricity bills, the salaries of the employees, and the income of the business, which are all recorded within the Chart of Accounts. It helps in the assessment of the financial performance of an organization and helps know of all the profits and losses over some time. It is the basis of being able to display or showcase the various financial aspects or performance of an organization for any purpose, individual, or application.

Understanding the Terms in the Chart of Accounts

Now, as the sample of the Chart of Accounts has been displayed above, let us further understand what each term in the table implies:

• THE ACCOUNT NUMBER:
  This is the unique ID, of the Number head offered to each ACCOUNT HEAD that is created at the time. This explains the account number of a specific account activity, much like the unique account number offered.
• THE ACCOUNT DESCRIPTION:
  This is the name of the account given to the specific account number created at the time for the specific Account Number.
• THE NATURE OF THE ACCOUNT:
  This is the group into which any of these charts of accounts fall at the time of creation. This is the category under which the Account head falls as and when created.
• THE CATEGORY:
  This is the automatic category under which the nature of the account falls into. Most people with basic knowledge of accounting will know that there are two basic categories: the BALANCE SHEET and the ‘profit and loss’ category also known as the income and expense account.

The Different Account Types

The chart of accounts usually comprises five separate account types: assets, liabilities, equity, revenues, and expenses. One can also state that the foundational basis of the chart of accounts is built upon these five account types. Now, let us explore each of these types in detail

The Chart of Accounts comprises the balance sheet that comprises the following group and order:

• ASSETS
• LIABILITIES
• OWNER’S EQUITY/ STAKEHOLDER’S

These are the main and the fundamental groups within the chart of the accounts and this is where all the major aspects of the financial issues take place. Likewise, the other main aspect under the chart of accounts is the income statement accounts. 

This comprises of the following groups and order:

• The operating revenues.
• Operating expenses.
• Other revenues like: Non-operating revenues and Gains.
• Other expenses like: Non-Operating Expenses and Losses.

Let us know a bit more about each of these categories:

• The Operating Revenues:
  This is the revenue, income, or profits that are being made directly by a certain business at a certain time. This can include the raw material or the goods that a shopkeeper own at a time, from which his business generates the revenue directly.
• The  Operating Expenses:
  This includes the expenses that are directly due to the cost of maintaining the business. This can include various aspects like the electricity bill, the salary of the employees,
• The Other Revenues:
  This includes the revenues that are not directly related to the operating revenues. This includes the indirect income sources like a certain asset that can be sold for a profit or interest generated from the savings at the bank.
• The Other Expenses:
  This is the expense that is a result of any indirect sources other than the main expenses. This can include the loan that you need to clear out or the losses that you need to bear for a wrong business deal.

One has to bear in mind that the Chart of accounts is subject to the nature and function of one’s business and what it deals with.

QuickBooks Chart of Accounts for Churches

The Chart of Accounts holds immense significance for churches using QuickBooks as it provides a structured framework for organizing and categorizing their financial transactions. By setting up a well-defined Chart of Accounts, churches can accurately track their income sources, expense categories, and asset allocations within QuickBooks. This organization enables church administrators to generate comprehensive financial reports, gain insights into their financial standing, and make informed decisions for budgeting and resource management.

The QuickBooks Chart of Accounts is a structured list of all the financial accounts used by a church in its accounting system. It comprises various categories, each representing a specific type of financial transaction. The primary purpose of the Chart of Accounts is to provide a systematic way of organizing and classifying financial data in QuickBooks. It enables churches to track income, expenses, assets, and liabilities accurately, allowing for easy financial reporting and analysis.

Basic Components of a Chart of Accounts:

1. Accounts: In the QuickBooks Chart of Accounts for churches, each account represents a unique financial category, such as offerings, donations, salaries, rent, etc. Each account is assigned a unique account number for identification.
2. Account Types: Accounts are categorized into five main types in QuickBooks for churches – Income, Expense, Asset, Liability, and Equity. These types determine how transactions affect the church’s financial statements.
3. Sub-Accounts: Sub-accounts are used to further categorize specific transactions within main accounts. For example, under the Income account for offerings, there could be sub-accounts for regular tithes and special offerings.

Tailoring the Chart of Accounts for Church Finances:

1. Customize Accounts: Churches can customize their Chart of Accounts in QuickBooks to align with their specific financial needs and practices. They can add new accounts or modify existing ones according to their unique income and expense categories.
2. Use Account Numbers: Assigning account numbers to each account helps in organizing and sorting the Chart of Accounts efficiently. Churches can follow a numbering system that aligns with their financial reporting requirements.
3. Segregate Funds: If the church manages multiple funds or ministries, they can create separate accounts or sub-accounts to track the income and expenses for each fund accurately.
4. Consider Reporting Needs: While tailoring the Chart of Accounts, churches should consider the reporting requirements of donors, stakeholders, and regulatory bodies. This ensures transparency and ease of reporting.

Key Accounts for Churches in the QuickBooks Chart of Accounts:

1. Income Accounts:

1. Offerings and Tithes: Track regular contributions from church members for worship services and ministries.
2. Donations and Contributions: Record one-time or recurring donations from individuals or organizations.
3. Fundraising Events: Monitor income generated from fundraising activities and special events.

2. Expense Accounts:

1. Staff Salaries and Benefits: Categorize expenses related to wages, taxes, and benefits for church employees.
2. Facilities Maintenance and Rent: Track costs for maintaining and renting church buildings and facilities.
3. Program Expenses (e.g., Missionary Trips, Outreach): Record expenses for specific programs or mission-related activities.
4. Office Supplies and Administrative Costs: Account for expenses associated with office supplies and general administrative functions.

Categories for Financial Reporting in the QuickBooks Chart of Accounts for Churches:

A. Statement of Activities (Income Statement):

1. Revenue Categories: These accounts in the Chart of Accounts capture all sources of income for the church, including offerings, donations, fundraising event proceeds, and other sources of revenue.
2. Expense Categories: Expense accounts categorize various expenditures incurred by the church, such as staff salaries, facilities maintenance, program expenses, and administrative costs.

B. Balance Sheet:

1. Assets: This category encompasses all the resources owned by the church, including cash, bank accounts, property, equipment, and any other tangible or intangible assets.
2. Liabilities: Liabilities accounts represent the church’s outstanding debts or obligations, such as loans, accounts payable, and other financial liabilities.
3. Net Assets: Net Assets, also known as Equity or Fund Balances, indicate the church’s financial position by calculating the difference between total assets and total liabilities.

Customizing the Chart of Accounts in QuickBooks for Churches:

Adding New Accounts:

1. In QuickBooks, go to the “Chart of Accounts” section.
2. Click on the “New” button to add a new account.
3. Select the appropriate account type (e.g., Income, Expense, Asset, Liability).
4. Enter the account name and a unique account number for identification.
5. Save the new account to include it in the Chart of Accounts.

Modifying Existing Accounts:

1. Navigate to the “Chart of Accounts” in QuickBooks.
2. Locate the account you want to modify.
3. Click on the account to open its details.
4. Make necessary changes, such as updating the account name or account number.
5. Save the modifications to update the account in the Chart of Accounts.

Using Account Numbers and Hierarchies:

1. To assign account numbers, go to the “Chart of Accounts” in QuickBooks.
2. Click on the “Account” drop-down menu and choose “Reorder.”
3. Assign unique numerical codes to each account to create a logical order.
4. To create hierarchies, add sub-accounts under main accounts.
5. Click on the “New” button to add a sub-account, selecting the appropriate main account to link it.
6. Arrange sub-accounts under main accounts to establish hierarchies.

Tracking Donations and Contributions in QuickBooks for Churches:

Setting Up Fund Accounts:

1. Access QuickBooks and navigate to the “Chart of Accounts” section.
2. Click on the “New” button to add a new account.
3. Select the “Bank” account type for the fund account.
4. Enter a clear and descriptive account name for the fund (e.g., General Fund, Building Fund).
5. Assign a unique account number for easy identification.
6. Save the new fund account to include it in the Chart of Accounts.

Recording Pledges and Donations:

1. In QuickBooks, go to the “Customers” menu and select “Receive Payments.”
2. Choose the appropriate customer (donor) from the list or add a new one.
3. Enter the donation amount in the “Received” field.
4. If the donation is a pledge, select “Pledge” in the “Payment Method” dropdown and set the payment date.
5. Specify the fund account (e.g., General Fund) to which the donation should be allocated.
6. Save the payment to record the donation or pledge.

Generating Contribution Statements:

1. Access the “Reports” menu in QuickBooks and go to “Contributions” or “Donations.”
2. Customize the report by selecting the desired date range and fund accounts.
3. Choose the information to include in the report, such as donor names, amounts, and dates.
4. Click on “Run Report” to generate the contribution statement.
5. Save or export the report for distribution to donors.

Generating Reports in QuickBooks for Churches:

Profit and Loss Report:

1. Access the “Reports” menu in QuickBooks.
2. Navigate to “Standard Reports” and select “Profit and Loss.”
3. Choose the desired date range for the report.
4. Optionally, filter the report by specific fund accounts for more detailed insights.
5. Click on “Run Report” to generate the Profit and Loss statement.
6. Review the report to analyze income, expenses, and net income for the selected period.

Balance Sheet Report:

1. In QuickBooks, go to the “Reports” menu.
2. Under “Standard Reports,” select “Balance Sheet.”
3. Set the date range for the report.
4. Optionally, filter the report to display specific fund accounts or account types.
5. Click on “Run Report” to generate the Balance Sheet.
6. Review the report to assess the church’s assets, liabilities, and net assets for the selected period.

Budget vs. Actuals Report:

1. Access the “Reports” section in QuickBooks.
2. Navigate to “Budgeting & Forecasting” and select “Budget vs. Actuals.”
3. Choose the appropriate budget to compare (e.g., Annual Budget).
4. Select the date range for the report to match the budget period.
5. Optionally, filter the report by fund accounts or account types.
6. Click on “Run Report” to generate the Budget vs. Actuals comparison.
7. Review the report to assess the variance between actual financial results and the budgeted amounts.

Best Practices for Church Accounting with QuickBooks:

Regular Reconciliation:

1. Access QuickBooks and go to the “Banking” menu.
2. Choose “Reconcile” and select the appropriate bank account.
3. Enter the ending balance from the bank statement and the statement end date.
4. Compare transactions in QuickBooks with those on the bank statement.
5. Mark each transaction as “Cleared” if it matches the bank statement.
6. Investigate and resolve any discrepancies between the two records.
7. Once all transactions are reconciled, click “Finish Now” to complete the process.

Backing up Data and Securing Financial Information:

1. Open QuickBooks and go to the “File” menu.
2. Select “Create Backup” and follow the prompts to create a backup file.
3. Choose a secure location to save the backup, such as an external hard drive or cloud storage.
4. Set up strong passwords for all users accessing QuickBooks.
5. Implement user access controls to restrict access to sensitive financial information.
6. Regularly update passwords and review user access permissions to ensure security.

Training Church Staff and Volunteers on QuickBooks:

• Provide hands-on training to staff and volunteers using QuickBooks.
• Familiarize them with the Chart of Accounts and its categories for income and expenses.
• Explain how to record transactions, such as donations and expenses, accurately.
• Demonstrate how to generate financial reports, including Profit and Loss and Balance Sheet.
• Offer ongoing support and training updates as needed to enhance proficiency.

The Balance Sheet Categories: Further Details

Let us take a look at some of the main details of each category:

ASSETS: This is further categorized into:

• CURRENT ASSETS: This comprises of the following and is common for almost all organizations:
  • Cash and Bank Balances
  • Accounts Receivables
  • Inventory Assets
  • Advances, Deposits, and Prepayments. 
• NON CURRENT ASSETS OR FIXED ASSETS:
  • Land and Building
  • Plant and Machinery
  • Office equipment
  • Furniture and fixture
  • Vehicles 
• OTHER ASSETS
  • GOOD WILL

LIABILITIES: This is categorized in to:

• CURRENT LIABILITIES
  • Accounts payable
  • Accrued Expenses
  • Short Term loan
  • Taxes Payable
  • Security Deposits from Customers/Retainers 
• NON CURRENT LIABILITIES
  • long term loans
  • Mortgages 
• OWNER’S EQUITY
  • Equity- Money Invested in
  • Drawings- Money taken out
  • Retained Earnings- the accumulated Profit/loss

The Income Statement Accounts

This is further categorized into the following:

• Operating revenues 
  • Product sales
  • Service sales
  • Discount to customers
  • Sales Returns 
• Other Revenues or the Non-Operating Revenues and Gains 
  • Dividends Income: this includes the dividend we gain from the Shares
  • Interest Income: This includes the profit we gain out of the money we save in the banks
  • Insurance Reimbursements: This is the reimbursement that we gain from the Insurance that we have.
  • Proceeds from Disposal of Fixed Assets: Profits that one can gain from the sale of an asset that we own or have.
  • Exchange Gains: The profit gained out of the fluctuations from a currency exchange rate. 
• OPERATING EXPENSES
  • Cost of the goods sold: This is the expenses related to the products that your business owns . This is common in retail, manufacturing and wholesale business and it further includes: 
    • Cost of materials
    • Cost of labor
    • Shipping, freight and Delivery charges
    • Subcontractor payments 
• SELLING EXPENSES 
  • Distribution costs- logistics, shipping and insurance
  • Marketing costs- Advertisement and Promotions
  • Selling costs- Salaries/ Commisions of sales staff 
• GENERAL AND ADMINISTRATIVE EXPENSES 
  • Staff Salaries (Non selling staff): This includes the administrative staff, accounts staff, janitorial staff, and any other staff that are not related to the sales.
  • Utilities, Communications, Office Rent, Travelling and more
  • Any other non-selling expenses 
• Other Expenses
  • Interest Expenses: something like the interest on a loan taken by you.
  • Exchange Losses: fall in the rate of the currency in the current times, in case you possess a foreign currency.
  • Loss on disposal of Fixed Assets: sale of an asset that results in the losses

These are the main categories that comprise the ‘design’ of the Chart of Accounts. Hence, one must have a clear picture about the main categories, the groups and the sub-levels in order to have their Chart of Accounts in a proper order. These need to be ‘fed’ into the proper headings within the Chart of Accounts in order to be able to generate the Balance sheet, Profit and Losses and the Trial sheet. So, you see the Chart of account is very important to implement the accounting software for any organization.

The Advantages of The Understanding Chart of Accounts

Let us take a look at the main benefits of the understanding of the chart of accounts:

• The Chart of Accounts is one of the most beneficial tool for the immediate visibility of the overall financial health of a company or the organization.
• The chart of accounts is as important as the foundation of your home. Hence, if the chart of accounts is organized and practical, better results will be produced by the accounting software at any given point of time. 

 Tips on How to Use Chart of Accounts

Here are the main tips on how to be able to use the Chart of Accounts in a better way for your organization:

• Ensure that the chart of accounts remains as relevant you your business as possible at any given point in time. This implies to the fact that the Chart of Accounts should be well linked to the everyday activities of your business. Avoid the ‘copy paste’ method when it comes to generating the chart of accounts for your business. In a nutshell, your Chart of Accounts must be specific to your business alone.
• Next, you must ensure that the Chart of Accounts is well maintained, consistent, well-detailed, and also practical, as this helps in the proper decision-making. This means that the ‘groupings’ must be done in a proper manner so that there are no problems with the results. This also means that the details offered in the Chart of Accounts should be precise and proper. All these steps help ensure that the results fetch you the decision-making strategies you want to benefit you.
• It is advisable to ensure that you create a specific rule to create COA, be it accounting numbers, or accounting groupings. This includes aspects such as coding, numbering, and the relevant grouping. Overall maintain the proper sequence within the chart of accounts to be able to generate the required results. This also includes the proper use of uniform FONT style for typing in the required data into the charts.
• It is also required for you to remain updated and relevant concerning the changes in the current business trends. This also includes the changes in the business financial transactions, new ventures, and the latest trends occurring. This helps in being able to control the financial reporting in a manner that fetches you the desirable outcome. This helps in being able to make the right decisions for your business.

Conclusion

So, there you have it people. These were a few facts, features, and aspects of the Chart of Accounts and why it is so important to understand it. Lastly, we all know that good bookkeeping requires the user or the owner to be able to remain updated, consistent, and most importantly well-organized. When using any accounting software, it is first and foremost important to be able to have a fundamental understanding of the Chart of Accounts.

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