How To Add A Chart Of Account In Quickbooks Online

Updated: 6/30/2022

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Quickbooks (QBO) is a powerful tool for any software company that is just starting out or in its early years. Sadly, unless you lot have some deep finance knowledge, its prepare up doesn't produce a Chart of Accounts that is right for SaaS. I'll walk you through how to set up it upwards and so that when you want to summate metrics or analyze trends, you tin can have confidence in the data.

Before we get into it, as a new QBO user, the terms in this guide might be confusing. Here are the few I'll be referencing.

QBO: Quickbooks Online
Chart of Accounts: the manner you organize your fiscal transactions
Functional accounts: making individual accounts to record your costs by squad
Account classes: a way to categorize your transactions in QuickBooks
COGS: Cost of Goods Sold

What is a SaaS Chart of Accounts?

If you're curious about my reasoning for thinking QuickBooks Online isn't gear up up properly by default, I wrote a deep dive into it here. If you can't spare the 5 minutes I'll requite you the TL:DR version. A expert SaaS nautical chart of accounts organizes your fiscal data in your accounting system so y'all can easily track costs by role (east.g. sales, marketing, product, engineering, support, customer successes, operations). QuickBooks does non have its default settings to do this.

Setting Up QuickBooks Online for Your Chart of Accounts

This is going to be a choose your ain adventure type exercise—considering how to prepare upwards a proper SaaS nautical chart of accounts depends on whether you are a new or existing user and which plan you have.

Optional adventure: if you lot're an existing Quickbooks Online user or have a Plus level subscription yous may desire to use the advanced categorization feature called Classes to track your spend past function.

The goal is to rails your fiscal data by function and all of the above options will achieve this past the time we're through.

Chart Of Accounts Setup for New QuickBooks Online Users

Our first option (and the easiest) is for everyone out there who is setting up their QuickBooks Online for the starting time time (or very early in your visitor'southward life). The reason this is the easiest, is considering y'all don't have any messy data history in QBO.

A quick note before diving in, the below steps are to exist used to fix a proper chart of accounts structure for your income statement (aka profit & loss statement) only. If y'all are setting up QBO for the get-go fourth dimension, you'll still want to make sure y'all add together in the correct Rest Sail accounts.

So follow forth below to see how you lot can fix up your income argument with separate accounts to track spend past function/department.

Why is this important? In order to summate accurate metrics similar Customer Conquering Toll, Gross Margin, and R&D spend as a % of acquirement, we need to be able to track your spend past each function (due east.1000. sales, support, engineering, operations, etc.) - the easiest style to practice this is to create split income argument accounts for each.

Step 1: Define Your Account Structure

To make this as simple equally possible, I've made an excel canvas that can be used to import your business relationship structure into QBO.

Annotation: you may desire to add a few more than custom accounts to track some transactions at a more detailed level.

For case:

Subscription Revenue - you may need to create new sub-accounts based on the products you sell
Services Revenue - yous may need to create new sub-accounts based on the services you sell
Travel & Entertainment accounts - you may demand to create new sub-accounts to track the different types of entertainment expenses that accept different deductibility rules for revenue enhancement purposes (ask your tax accountant about this)

Non sure how to make sub accounts? Take a look at our import template. I've highlighted the sub-accounts we take made for the various payroll accounts. The naming convention is Main business relationship: Sub account.

If you don't want to break out your payroll with this level of granularity, so feel gratis to delete these highlighted sub accounts before importing. Still, we recommend asking your tax accountant what level of detail they need for payroll tracking purposes before you practice that, as some pieces of your payroll may demand to be reported differently or separately for tax purposes.

Don't worry, you lot tin ever get back and manually create sub-accounts straight in QBO subsequently, but doing and then in the Excel import template to start will relieve you some fourth dimension and clicking around.

Stride 2: Import Your Chart of Accounts to QuickBooks Online

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Now that you have your important template updated with all the sub accounts you would like, information technology's time to import the accounts.

Log into QBO and navigate to the Import Data page (click the tiptop right gear icon >> then under Tools click Import Data)

On the Import Data screen click Chart of Accounts.

Browse for where you lot saved our nautical chart of accounts template on your estimator and click Next.

In the map information screen, make sure your columns are aligned similar so (information technology should be the default unless you have inverse some of the column headings in the excel file by accident). Click Side by side.

Do a quick review of the accounts QBO is planning to import. Y'all should see a screen similar below, practice a quick scan through to make sure all the rows are checked and the business relationship names, types and detail types accept been populated.

If you added your ain accounts in the upload template and made some misspellings in the type or item blazon columns you should see those errors here (for example, see the red outline effectually the detail type for Account 5010. The correct detail type to use is Cost of Labor - COS non COGS, and then QBO is flagging this error). If you have whatsoever ruddy boxes, select the right type and detail types from the driblet downwardly.

When everything looks as you expect, click Import. All your new accounts should be imported.

To check out your company's chart of accounts, hover over the Bookkeeping tab on the left and click Chart of accounts.

Footstep 3: Clean Up Income Statement Accounts

When you first created your QBO company, it gave you a scattering of accounts by default. Now that all your new accounts are imported, you'll desire to delete or mark inactive any income statement accounts that were populated on setup. (circumspection! don't go deleting the Asset, Liability or Equity accounts - you still demand those for your balance canvas).

Note: some accounts tin can't exist deleted or marked inactive, if that's the case, we recommend appending Practice Not Use or DNU to the end of the account name to warn your accountant not to post transactions there.

You lot are all set to start recording your transactions in their proper accounts!

Reformatting Chart of Accounts for Existing QBO Users

This is going to take a little chip of work. Simply the one time pain is definitely worth it for the easier reporting and reliable metrics down the road.

A quick heads upward, if you are using (or want to use) QBO's Classes reporting functionality I'd recommend post-obit along with the "Using classes to rail spend past function" section instead of this. For everyone else, what I'll walk you through below is how to transition your current income statement accounts into our recommended functional account structure.

Step ane: Redefine Your Account Structure

Nosotros've made this piece of cake for you with our downloadable excel canvas that you can import into QBO.

Pace 2: Identify and Resolve Discrepancies in Accounts After Uploading

The easiest fashion to meet your full account list is to run an Business relationship List report. To do this, click on the Reports tab on the left bill of fare and in the search bar type Account List. From here y'all tin export to Excel or PDF if it'southward easier to view.

Mutual Business relationship Discrepancies

Afterward reviewing countless SaaS company charts of accounts, hither are a few differences we typically detect - they fall into a few themes

i. Costs for multiple functions recorded in a unmarried business relationship.

The goal of a functional account structure is to tape costs in separate accounts for each function (e.m. Support, Sales, Marketing, Operations, etc.) so you can accurately summate your metrics. We ofttimes see companies record costs for multiple functions in the same account for payroll, subcontractors, travel, and software spend. If that'south the instance for your visitor, you'll need to add new payroll/subcontractor/travel/software accounts for each office to get the right level of detail.

2. COGS accounts non listed as COGS.

If yous desire your income argument from QBO to exist presented properly, take a look at the accounts you have listed with the Cost of Goods Sales blazon. Yous should make sure all of your COGS accounts accept the COGS account blazon and accounts that shouldn't exist in COGS don't have that account blazon. Not sure what should exist included in COGS - nosotros've got you covered.

3. Incorrect other income and expense accounts.

Similar to above, if y'all desire your income statement to evidence operating income / EBITDA separately from Net Income (how investors often similar to encounter things), yous'll desire to brand sure all Involvement, Taxes, Depreciation and Acquittal accounts (the ITDA in EBITDA) take an account type "Other Income" or "Other Expense." QBO is a little funky hither because the particular account types of Involvement Paid and Taxes Paid both fall nether the Expenses account type - which means they will testify up in your Operating Income. For those accounts I recommend choosing the account blazon Other Expense with Detail Type Other Miscellaneous Expense.

Footstep three: Create, Delete, and Merge Accounts

Once you've figured out what new accounts you will demand, go ahead and add them.

When reviewing your chart of accounts did you lot realize yous had a bunch of accounts that aren't being used or are duplicative of another account? If so, take this time to clean things up and delete or merge those accounts.

Step 4 - Reclassify Onetime Transactions

Now comes the fun part. We highly recommend yous (or your bookkeeper) spend some time to go dorsum to prior transactions and recategorize them into the proper accounts.

For example that might mean switching the accounts for payments to your subcontractors to the right functional subcontractor accounts or adding in journal entries to classify your payroll spend.

How far should you get dorsum? Definitely this electric current tax year, if y'all think your tax accountant will have a heart attack if you switch things around for previously filed tax years, perhaps don't affect those.

Happy reclassifying!

Using Classes in QBO For Your SaaS Visitor

Quick note - if you don't have the Pro version of QBO and don't plan to upgrade, this chance isn't for you lot as Classes reporting functionality is only enabled for Pro users and above.

Benefit of QuickBooks Online Classes

The quick answer: enabling Classes turns your standard chart of accounts into a multidimensional nautical chart of accounts. Equally your company grows, it can become very burdensome to continue creating new accounts to rails your spend by role, using Classes allows you to still practise this without growing your account listing.

Instead of creating all new accounts for each function, you lot can tape all of those transactions in a single account, merely within that account yous will tag a Class to the transaction.

See the graphics below for a visualization of the difference between creating a functional P&L via separate accounts per office (Options 1 and 2) and via classes (this Option).

Functional P&L accomplished via separate accounts for each function:

Functional P&L accomplished via Classes:

How to Implement Classes in QuickBooks Online

Step 1: Enable and Create Classes

What are Classes? QBO support does a good job explaining Classes and how to enable them. We recommend creating Classes for each key function of your company (e.m. customer success, client support, professional person services, sales, marketing, production, engineering science, operations, finance, HR, etc.).

Footstep two: Review Your Account Construction

Once you lot have your classes created, make certain your account structure is in a good place. Above are some mutual account construction bug you might see and need to resolve past creating, deleting, and merging accounts.

Take this time to see if you have multiple accounts tracking the same type of spend. For example I've seen people that have an account called Rent & Utilities, another one called Rent and and then another named Utilities - there is some consolidation you can do here. If that is the example, consider merging those accounts together to reduce your business relationship list.

Stride 3: Categorize One-time Transactions past Grade

Last step, and well-nigh time intensive stride. We recommend you go back and categorize your old transactions by Class.

How practise you do this? If you are using an external bookkeeper, chances are they have your company fix in Quickbooks Online Auditor (QBOA). QBOA has a cracking tool called Reclassify Transactions that allows them to assign classes to historical transactions in batches. And then check with your bookkeeper if they tin can help yous out here.

Otherwise, you'll have to get transaction past transaction and manually assign the Class (not sure this will exist worth it, merely if mindless data entry calms yous go for it).

At a minimum, make sure going forward you lot are assigning a Form for all of your new transactions being added to QBO and your data will be improved from this twenty-four hour period forward.

Learn More than About Business Metrics

Once y'all've got a solid understanding of Quickbooks, you're ready to dive into your business concern metrics to help you make informed business concern decisions. Larn more than most key performance indicators and how a adult understanding can amend your business organization.

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