The answer – maybe.
If you peek at your Chart of Accounts, you might be surprised by the number of accounts you access on a daily basis. We normally don’t see this in QuickBooks, since most account management is done for you behind the scenes. But the truth is, it takes a veritable village of accounts to accurately track all your business transactions.
After adding a few dozen accounts in QuickBooks, you may wonder if they’re all necessary. (We know categorizing them all is certainly complicated, as Stacy Kildal [QBO Show host and ProAdvisor] hinted at in her recent Twitter post -- but we’ll save that topic for another article).
Question is, how many accounts do you actually need?
The short answer - you need enough to be legally compliant for tax purposes and enough to know precisely how much money you owe, are owed and have on hand. There’s no simple answer. It truly depends on the needs of your business. You may only need a few accounts to track the right data… or a few dozen.
There’s also plenty of guidance to navigate you through this conundrum. David O’Brien and Trevor Matheson from Real World Training offer four simple guidelines to follow that can help you keep the number of accounts under control. These guidelines are particularly useful for first-time QuickBooks Online users, but you can use them any time you’re stumped by a tricky transaction that may, or may not, require creating yet another account.
Strange as it sounds, it’s a good thing if you’re still feeling intimidated – it means you’re aware and want to do things right - and Real World’s guidelines will help you feel more confident and do it right.
David and Trevor emphasize:
1. Keep things simple
2. Remember, less is more
3. Make sure you can easily explain the categorization for any transaction
Now it’s your turn
How many accounts are in your Chart of Accounts? Which ones do you think are absolutely necessary for every QuickBooks user?
That is a nice write up. When we setup books for our clients we usually use the following method to keep the Chart of Accounts simple -
Balance Sheet Accounts
Equity Accounts (for sole proprietorship and partnerships)
Equity Accounts (for corporations)
Profit & Loss Accounts
When we set up COA for our clients we use a standard template that we have built in excel and import it. We have one for coffee shops, contactors, online retailers and so on. This ensures that we have just enough accounts, but not too many to make things a little crowded!