4. Understanding QuickBooks Lists

Add or Edit the Chart of Accounts

Create an Item to Use on a Customer Invoice

QuickBooks offers several methods for tracking and reporting on your accounting data so you can review how your business is doing financially.

With QuickBooks, you can use the following lists to analyze your business:

• Chart of Accounts—For organizing your daily transactions

• Items List—For tracking the profitability of individual services and products sold

• Class List—For tracking different corporate profit centers (divisions)

• Customer Type List—For viewing your gross profit by user-defined customer types

The QuickBooks chart of accounts is easy to set up. It might already exist if you created your file with the Express Start discussed in Chapter 1, “Getting Started with QuickBooks.” What becomes problematic for some is how to efficiently use each of the available list types when you want to segment the business reporting activity in QuickBooks. We start first with the chart of accounts.

Chart of Accounts

The chart of accounts is a list of asset, liability, equity, income, and expense accounts to which you assign your daily transactions. This list is one of the most important lists you will use in QuickBooks; it helps you keep your financial information organized. When this list is created with summary accounts and you use the other list types for detail, you can capture information in a timely manner, which helps you make good financial and management decisions for the business.

Account Types

Understanding the chart of accounts isn’t complicated. Six standard account categories track the financial activity of your business: assets, liabilities, equity, income, cost of goods sold, and expense.

Assets

Assets include something you have purchased in the past that you will use in the future to generate economic benefit. QuickBooks offers these categories in the order of how liquid the asset is—or, in simple terms, how quickly you can turn the asset into cash:

• Bank—This account type tracks your cash in and out of the business. This account type and the credit card account type are the only account types you can select as the payment account in the Pay Bills or Write Checks dialog box.

• Accounts Receivable—This account type requires a Customer or Customer and Job name with each entry. You use this account type when generating an invoice or credit memo transaction or when receiving a customer payment. You can create more than one Accounts Receivable account, if needed. (This is not recommended, however, because it adds the extra work of recording customer payments.)

• Other Current Asset—This general account includes the QuickBooks Inventory Asset and the Undeposited Funds account. The Undeposited Funds account is used like a “desk drawer,” in that it holds customer payments to be totaled on a single deposit ticket.

• Fixed Asset—This account tracks purchases of tangible property that will have a useful life of longer than one year. Accumulated Depreciation totals are also held in this account as a negative fixed asset.

• Other Assets—This account includes intangible assets that have a life of more than one year; it also includes any asset that is not a Fixed Asset or Current Asset.

Liabilities

Liabilities are the debts the company has yet to pay. QuickBooks includes these subgroups:

• Accounts Payable—This account type is reserved for the QuickBooks Accounts Payable account where vendor bills and bill payments reside.

• Credit Cards—Optionally, users can use this grouping to track the charges and payments made against a company credit card. One benefit is that you can reconcile this account as you do your bank account and download your credit card transactions directly into QuickBooks.

• Other Current Liability—This is debt that is expected to be paid within one year. This grouping includes the QuickBooks-created Payroll Liabilities account and Sales Tax Payable account, in addition to other user-defined liability accounts.

• Long-Term Liability—This is debt that will not be paid within one year.

Equity

The Equity account category holds the owner’s (or owners’) residual interest in the business after the liabilities are paid. Accounts in this category include Common Stock, Owner’s Investments and Draws, Retained Earnings, and Opening Balance Equity (an account created by QuickBooks.

→ To learn more, see “Closing Opening Balance Equity into Retained Earnings,” p. xxx

Income

Money earned from the sale of your products or services is recorded as income. Your company might have one Income account or several, depending on the detail needed for your financial analysis. Another category of income is Other Income, or income generated from the sale of a product or service not normal to your operations. Interest Income is an example of an Other Income account type.

Cost of Goods Sold

The Cost of Goods Sold account is for costs directly related to producing a service or good for sale. A direct relationship exists between these costs and your revenue. If your company sells a product, your cost of goods sold (COGS) expenses are the material, labor, and other costs incurred to make and sell the product. By contrast, your office expenses for rent or advertising are considered indirect and should not be posted to the Cost of Goods Sold account type.

Expense

An expense is recorded when an asset is used or there is an outflow of cash. The expense accounts were created during the Express Start or Advanced Setup and provide you with the basic classifications needed for properly tracking your expenses.

Although QuickBooks does not automatically create other groupings within the expenses category, a recommendation is to group your expenses by fixed (or uncontrollable) and variable (or controllable) costs. When you review your costs, these additional groupings make easy work of determining which costs you have more control over.

You can also categorize an expense as an Other Expense, which is an expense that is not normal to your operations. Contact your accountant for advice on what expenses are appropriate to record to an Other Expense category type.

Adding a New Account

If you created your own new data file using one of the methods taught in Chapter 1, you might already have the basics of your chart of accounts created for you. Let’s think positively and use the example that your business is doing so well that you have opened a new money market account with your bank. You know you need to create a new bank account in QuickBooks so that you can reconcile your banking activity with your financial institution’s records.

The Add New Account dialog box also includes several other important fields:

• Bank Acct No.—This information is used if you set up your QuickBooks bank account for online banking downloads. For more information, see Chapter 13.

• Routing Number—This information is used if you set up your QuickBooks bank account for online banking downloads (see Chapter 13).

• Enter Opening Balance—This button opens the Enter Opening Balance dialog box, where you can enter your Statement Ending Balance and Statement Ending Date. Click the “Should I enter an opening balance?” link for help in entering these important starting numbers.

→ For more information about beginning balances, see “Setting Up a QuickBooks File for Accrual or Cash Basis Reporting,” pg. xxx.

This dialog box also enables you to request a reminder to order checks when you reach a specific check number or order checks directly from Intuit.

The specific details required when creating a new account vary depending on the type of account you are adding to the chart of accounts.

Creating a new account in the chart of accounts is simple. However, if after reviewing the content in this chapter you find the need to make corrections, read the section “Modifying an Account in the Chart of Accounts” in this chapter.

Items

Items are what you sell or buy and are used on all customer transactions and, optionally, on purchase transactions. Items provide a quick means for data entry. However, a more important role for items is to handle the behind-the-scenes accounting while tracking product- or service-specific costs and revenue detail.

Understanding Items

Using a construction business as an example, you can create an item for Site Work, Electrical, and Plumbing Subcontractor, and assign each item to your single Cost of Goods Sold—Subcontractors account in the chart of accounts.

Using items enables you to capture cost detail by trade instead of by creating an account for each type of expense. When you view your Profit & Loss statement, you can easily see what your total Cost of Goods Sold—Subcontractors is for all trade labor expenses. See Figure 4.3.

Figure 4.3. Item reports provide detail while keeping the Profit & Loss statement easy to read.

From the menu bar, select Reports, Jobs, Time & Mileage for reports that provide detailed information about transactions assigned to items, including:

• Job Profitability Summary or Detail

• Job Estimates vs. Actuals Summary or Detail

• Item Profitability

• Time by Item

These reports are useful for business owners who want to know the profitability of individual customers or jobs.

Item Types

QuickBooks has 11 item types to choose from (not including the Fixed Asset Item), although your data file might not list some of the items if the related feature is not enabled. You can choose the type to assign to a list item; however, each type has certain unique characteristics. Here are some general guidelines about the proper use for item types:

• Service—Create this type for services you or your subcontractors offer.

• Inventory Part—This type displays only if you select the Inventory and Purchase Orders Are Active checkbox on the Items & Inventory—Company Preferences tab of the Preferences dialog box. (Access the menu bar by selecting Edit, Preferences.) Inventory is used to track products you make or buy, place in a warehouse location, and later sell to a customer. Inventory is increased with a received purchase order or bill and is decreased on a customer invoice.

→ For more information, see Chapter 5, “Setting Up Inventory,” and Chapter 6, “Managing Inventory.”

• Inventory Assembly—This item type is an assembling of multiple inventory components, as in a Bill of Materials. When an inventory assembly is built, the individual items (components of the assembly) are deducted from inventory and the quantity of the finished assembly product is increased. The assembly functionality is available only in QuickBooks Premier, Accountant, or Enterprise.

• Non-inventory Part—This type is used for products you purchase but do not track as inventory. Correct use of this type includes products you purchase that are ordered for a specific customer and directly shipped to the customer, or materials and supplies you purchase but do not sell to the customer.

• Other Charge—This is a multipurpose item type. Freight, handling, and other miscellaneous types of charges are examples of the proper use of the Other Charge item type. Using this type makes it possible to segregate sales of your service or product from other types of revenue and expenses in reports.

• Subtotal—This type is used to add subtotal line items on sales and purchase transactions. This item is especially useful if you want to calculate a specific discount on a group of items on a customer invoice.

• Group—This type is used to quickly assign a grouping of individual items on sales and purchase transactions. Unlike assemblies, groups are not tracked as a separate finished unit. Groups can save you data entry time and enable you to display or hide details on a customer’s printed invoice.

• Discount—This type facilitates dollar or percent deductions off what your customers owe. You cannot use this item type on purchase transactions.

• Payment—This item type is not always necessary to set up. You create this item type if you record the payment directly on an invoice as a line item, such as with a Daily Sales Summary (see the QuickBooks Help for more details). On typical customer invoices, you should not record payments in this manner because no tracking of the customer’s check or credit card number is done.

• Sales Tax Item—This type is available only if you enabled sales tax on the Sales Tax—Company Preferences tab of the Preferences dialog box. (Access it from the menu bar by selecting Edit, Preferences.) In most cases, QuickBooks automatically assigns this item to an invoice. In some states or industries where multiple sales tax rates can apply for a given sale, you can also add this item to an invoice as a separate line item.

• Sales Tax Group—This type is used to group multiple tax district flat-rate sales tax items that are combined and charged as one sales tax rate.

Adding an Item

Adding items to your QuickBooks file takes some planning, but the effort will pay off with improved reporting on the different services or products your company provides.

Later in this chapter, you learn how to add multiple items at a time using the Add/Edit Multiple List Entries. In this example, you add a single new Service Item type to the sample data file.

→ For more information about tracking product inventory, see “Inventory Item Type Descriptions,” p. xxx. (ch5).

→ For more information about other uses of the items list, see “Unique Customer Transactions,” p. xxx. (ch10).

Class

Another method for segmenting your QuickBooks financial information is to use classes. The use of classes is a preference setting and must first be enabled by logging in to the data file as the Admin or External Accountant user.

To enable classes, follow these steps:

1. From the menu bar, select Edit, Preferences.

2. In the Preferences dialog box, select the Accounting preference on the left.

3. Select the Company Preferences tab.

4. Select the Use Class Tracking for Transactions checkbox, as Figure 4.6 shows.

Figure 4.6. Class tracking provides another method for financial reporting for management purposes.

5. Click OK to save your changes and close the dialog box.

Classes are typically used when a company has multiple revenue-generating business types or multiple profit centers. These class list items are then assigned to each transaction, as in Figure 4.7. Examples of classes are a construction company that offers either new construction or remodeling services, or a restaurant with multiple locations. In both examples, using classes that are assigned to each transaction line for both revenue and costs enables you to report profit and loss by class.

Figure 4.7. Assigning a class list item to a check transaction line provides additional management-reporting capabilities.

When deciding to use classes, it is important to have only one primary purpose for the class structure. If you try to track more than one “type” of class, the value in the reporting is diminished. For example, suppose your company has both an East Coast and a West Coast division. These represent a single use of the QuickBooks class feature. However, using classes to also track the source of the business—for example, Yellow Pages, email marketing, and so on—would diminish the success of class reporting because you would be tracking two unrelated groupings. Instead, you can use classes for one purpose and customer types for another.

With QuickBooks Enterprise Solutions 14.0, you can set a global preference allowing users to assign default classes to one of the following lists:

• Accounts

• Items

• Names

For example, if you selected to assign classes to items, when setting up an item, you can identify the default class to use on the transaction, as Figure 4.8 shows. This saves users time in data entry and improves the accuracy of assigning the desired default class.

Figure 4.8. With QuickBooks Enterprise, you can choose to default classes to accounts, items, or names.

Customer Type

You can use customer types to categorize your customers in ways that are meaningful to your business. A retailer might use customer types to track retail versus wholesale, a medical office might track types of services, and a service company might track what marketing event brought in customers. You can filter certain reports by these customer types, giving you critical information for making business management decisions. These customer types can also be useful for marketing purposes when you want to direct a letter to a specific customer group.

To create or edit a customer record and assign a customer type, follow these steps:

1. On the Home page, click the Customers button. Optionally, use the shortcut Ctrl+J.

2. Double-click to select a customer name in the list that displays.

3. In the Edit Customer dialog box, click the Additional Info tab and select a type from the Type drop-down list. Optionally, from the drop-down list, select <Add New> to add a new type, as in Figure 4.9.

Figure 4.9. Assign a customer type for additional segmented reporting.

4. Click OK to save your changes.

You can filter many of the customer reports by customer type, making it another useful list for management reporting.

Managing Lists

You have learned about some of the more important lists to set up in your QuickBooks file. This section shares details about managing these lists, including preference settings that can help make you more efficient and accurate with your daily data entry.

This section also provides you with multiple options for importing your lists (but not transactions) into your new QuickBooks file and managing these lists when they are in QuickBooks. When importing your lists, you can select from multiple methods, including the following:

• Adding or modifying the list directly in QuickBooks, one item at a time

• Adding or modifying your lists using Add/Edit Multiple List Entries, or adding or modifying multiple records at a time in a single list

• Using the Advanced Import tool in QuickBooks

• Importing a list from another QuickBooks file using the IIF (Intuit Interchange File) format

If you are starting with a new QuickBooks file, you might first want to review the preference settings that affect the chart of accounts.

Chart of Account Preferences

Setting preferences in QuickBooks can help you be more accurate and efficient with your data entry. In Chapter 2, “Getting Around QuickBooks,” you learned about Company Preferences, which are global for all users, and My Preferences, which affect only the settings for the currently logged-in user.

Using specific preferences, you can modify how many of the QuickBooks features work. To do so, from the menu bar, select Edit, Preferences and select the Accounting—Company Preferences tab, as Figure 4.6 previously showed.

These preferences in the Accounting—Company Preferences tab affect the chart of accounts:

• Use Account Numbers—Selecting this option turns on the data field that holds a numeric assignment for each chart of accounts. By default, this feature is not selected in a newly created QuickBooks file.

• Show Lowest Subaccount Only—You can select this preference only if you selected the Use Account Numbers checkbox and if each account has been assigned an account number. If you have created a subaccount listing under a main (parent) listing, when you type the subaccount name, only the subaccount name and account number display in transactions. Without the feature selected, when you type a subaccount name on an expense transaction, you see both the main account name and subaccount name.

• Require Accounts—By default, this feature is selected in a newly created QuickBooks file. If this feature is not selected, any transactions saved without selecting an account are posted to an automatically created uncategorized income or uncategorized expense account. This process follows the rule that there must always be a debit and credit side to each transaction. Fortunately, you do not have to know how to post a debit or credit because QuickBooks does this thinking for you with each transaction.

Add/Edit Multiple List Entries

Adding or modifying several entries in a single QuickBooks list can be a daunting task when you have to work with one list entry at a time. In Chapter 1, you might have created your lists using the QuickBooks Setup to add the people you do business with, the products or services you sell, and your bank accounts.

With the Add/Edit Multiple List Entries feature (see Figure 4.10), you can add to or modify Customer or Vendor records. You can also add or modify your Service, Inventory Parts, Non-Inventory Parts, and Inventory Assemblies. Using this feature can save you precious time, particularly when you want to add or make changes to multiple entries on a list all at once.

Figure 4.10. Use the Add/Edit Multiple Lists Entries to add or modify your lists efficiently.

From the grid, you can right-click with your cursor for other functionality. From this menu, you can use Copy Down, Duplicate Row, Clear Column, and other useful features.

Add Your Excel Data to QuickBooks Utility

You can also add lists to QuickBooks for Vendors, Customers, and Products You Sell (Items) directly from a ready-made Excel spreadsheet using the Add Your Excel Data to QuickBooks utility. If you choose to use the Advanced (Excel) Import feature of this utility, you can also import a chart of accounts list, something you cannot do using the Add/Edit Multiple Lists Entries feature. This functionality is supported using Microsoft Excel 2003 or newer.

Enter Data into Preformatted Spreadsheets

Follow these steps to import lists using the preformatted Excel spreadsheets included with this utility:

1. From the menu bar, select File, Utilities, Import, Excel Files.

2. An information message might display regarding the Add/Edit Multiple List Entries feature discussed in the prior section. Optionally, place a checkmark in the Do Not Display This Message in the Future box.

3. Click No to continue using the Add Your Excel Data utility. The Add Your Excel Data to QuickBooks Wizard displays, as in Figure 4.11.

Figure 4.11. Choose the type of list to which you want to add information using this utility.

4. Click to select the type of data you want to add to QuickBooks. You can choose from these options:

• Customers

• Vendors

• Products I Sell

5. In this example, click Customers. QuickBooks might display an information message about not being able to undo this import. It is prudent to make a backup of your data file before proceeding. Click Yes.

→ For more information, see “Creating a QuickBooks Backup,” p. xxx. (ch17).

6. Optionally, click the Show or Hide Coach Tips and Show or Hide Detailed Instructions. Both provide onscreen details about working with this preformatted spreadsheet. See Figure 4.12.

Figure 4.12. Preformatted spreadsheets make entering data with this utility easy.

7. Begin adding data to the spreadsheet using one of these two methods:

• Copy and paste from an existing Excel worksheet.

• Manually type your data into the spreadsheet.

8. When your work is complete, you have the following options:

• Save the workbook and later open it by returning to step 1, selecting the option to Find It Now, and browsing to the stored file.

• Click the Add My Data Now button.

9. If you selected Add My Data Now, you are prompted with Save & Add My Data Now or I’ll Add My Data Later.

10. If you selected Save & Add My Data Now, you are prompted to select a location to store the file. Click Save. QuickBooks provides confirmation listing the number of records that were imported successfully.

11. Select the View Customer List button to view the data that was imported.

12. Click Close to leave the Add Your Excel Data to QuickBooks.

This utility has been available for many years but was greatly improved in QuickBooks 2014, offering access to more fields. Using this feature helps you get your lists quickly into a new QuickBooks file. I personally prefer working with the Add/Edit Multiple List Entries dialog box because I can arrange the columns of data to match my existing spreadsheet I might be copying from.

Advanced Import from an Existing Excel Worksheet

The advantage to using the Advanced Import is the capability to import a chart of accounts list into a new QuickBooks file from an existing Excel worksheet. This is a common practice among accounting professionals. The other methods of importing discussed in this chapter so far do not offer the capability to import one of the most important lists, the chart of accounts.

However, most users do not necessarily need to import this list. When you use the Express Start feature for creating a new QuickBooks file, QuickBooks automatically creates a chart of accounts list based on the industry type you selected during that process.

→ For more information, see “Express Start,” p. xxx (ch1).

Follow these instructions to import the chart of accounts from an Excel spreadsheet:

1. From the menu bar, select File, Utilities, Import, Excel Files. On the right, click the Advanced Import button. The Import a File dialog box displays, with the Set Up Import tab selected.

2. In the Select a File pane, browse to the location of your saved Excel spreadsheet that contains the chart of accounts.

3. If the workbook has multiple sheets, select the appropriate sheet to use from Choose a Sheet in This Excel Workbook, as in Figure 4.13.

Figure 4.13. Advanced Import is a useful utility if you already have your lists in an Excel worksheet. This utility does not require that you copy and paste the details.

4. If this is your first time using this utility, in the Data Mapping pane, select Add New in the Choose a Mapping drop-down. The Mappings dialog box displays.

5. Type a name into the Mapping Name field. This enables you to select this mapping for use again.

6. For the Import Type, in this example, select Account.

7. The left column lists the fields available in QuickBooks (see Figure 4.14). The fields in your selected spreadsheet appear in the Import Data pane on the right. From the drop-down list, select the matching field.

Figure 4.14. When using Advanced Import, map the columns of an existing spreadsheet to the fields in QuickBooks.

8. Click Save to store this mapping for future use. You then return to the Import a File dialog box.

9. Click Preview to see the results of what the import will be prior to completing this step. Any errors in the import file show the word Error displayed in red text. Click any row with an error, and QuickBooks details the reason so you can fix it before importing.

10. Select how to handle errors by choosing from the following:

• Import Rows with Errors and Leave Error Fields Blank

• Do Not Import Rows with Errors

11. Click Import to complete the process—or click OK to close the Preview dialog box, or click Cancel to not make any changes. See Figure 4.15.

Figure 4.15. Preview the import and view any rows with errors.

12. If you selected Import, QuickBooks displays an information dialog box recommending that you back up your data prior to the import. You cannot undo the import process. Click Yes to continue the import, or No to make a data backup first.

13. If QuickBooks detects duplicate records, a message displays and you can choose from options listed below. When making a selection you will be able to Click Apply, Apply to All, or Help to complete the selected action.

• Keep existing data and discard import data

• Replace existing data with import data, ignoring blank fields

• Replace existing data with import data, including blank fields

14. If you selected Yes to the Import message, QuickBooks confirms the records that were imported. Select Save to save the Error Log (browse to a location to store the file) or Don’t Save.

15. To view the chart of accounts that was imported, from the menu bar, select Lists, Chart of Accounts.

With QuickBooks 2014, you have several options for importing your lists. Getting started using QuickBooks is fast and easy. The next section details another method you can choose to use, especially if you are choosing to copy lists from one QuickBooks file to another.

Importing an Intuit Interchange Format File (IIF)

The term Intuit Interchange Format (IIF) refers to data exchange functionality that has been around for some time. It is a method for exporting lists from one QuickBooks file and importing these lists into a new QuickBooks file. The process creates a tab-delimited value format file with the extension of .iif. You can view and edit this file using Excel.

The most common use for this tool is to export lists from one QuickBooks data file to a new QuickBooks data file. The process is easy and relatively error free. Other uses for the tool include transaction imports. This book does not cover the topic of transaction imports using IIF-formatted files; however, you can find more information about this utility by typing IIF into the search field at www.quickbooks.com/support.

The IIF format is a preferred and easy method to use if you already have a QuickBooks file with a chart of accounts (or other lists) that you want to replicate in another file.

The only disadvantage to working with an IIF format file is all the extra information that is in the text file, making it awkward to edit or add to the existing information.

To export an IIF-formatted chart of accounts file from an existing QuickBooks file, follow these steps:

1. From the menu bar, select File, Open or Restore Company to open the QuickBooks file that has the chart of accounts (or other lists) you want to export and duplicate in another file.

2. From the open QuickBooks file, on the menu bar, select File, Utilities, Export, Lists to IIF Files.

3. In the Export dialog box, select the Chart of Accounts checkbox (or other type of list you want to export), shown in Figure 4.16.

Figure 4.16. The Export dialog box shows choices of lists available for export.

4. Click OK. You are prompted to provide a filename and to save the file. Remember the location where you store the file; you need to browse to the file to import into another QuickBooks file.

Figure 4.17 shows the exported QuickBooks chart of accounts in the IIF format in an Excel workbook. You can see that it is not as user friendly as the Add/Edit Multiple List Entries dialog box discussed previously.

Figure 4.17. This chart of accounts IIF format file can be imported into another QuickBooks file.

To import the saved IIF file into a new QuickBooks file, follow these steps:

1. From the menu bar, select File, Open or Restore Company, and select the QuickBooks file you want to import the previously exported list into.

If you have not already created your new file, select File, New and follow the prompts. (See Chapter 1 for more information.)

2. From the menu bar, select File, Utilities, Import, IIF Files.

3. In the Import dialog box, browse to the location of the stored IIF-formatted file.

4. With your cursor, select the file and click Open.

5. QuickBooks then imports the IIF-formatted file into the QuickBooks data file. Click OK to close the Your Data Has Been Imported message box.

Now that you have your new data file with new lists from another file, you are ready to begin entering transactions. Think of all the time you saved by not having to manually create each list item in the new file.

Reporting on Lists

With a QuickBooks file created and lists entered, you can now review the efforts of your work.

Let’s start with a simple listing of your vendors.

1. From the menu bar, select Reports, List. Take a moment to review the many lists available for reporting on in this menu. Some lists display only if the associated preference in QuickBooks is enabled.

2. Select the Vendor Contact List. Optionally, click the Customize Report button.

3. The Modify Report dialog box opens, with the Display tab selected. From the Columns listing, add or remove checkmarks to include or exclude information from the list report.

4. Click OK when finished.

You learn more about modifying these and other reports in Chapter 14, “Reporting in QuickBooks.”

Reviewing your lists before you begin entering transactions can ensure that the information provided in reports is correct.

Finding and Fixing Chart of Account Errors

When searching for reasons why your financial statements do not appear correctly, the first place to look is often the chart of accounts. It is also important to carefully consider the impact of the change on your financials and make sure you choose the right method for correction.

You can resolve errors found on the chart of accounts in many ways. However, before attempting any of the suggested methods here, you should consider the following:

• The effect the change could have on prior-period financials

• The effect the change could have on previously recorded transactions

• The impact the changes would have on the records your accountant has kept for the company

A quick review of the chart of accounts should include the following:

• Duplicated accounts

• Unnecessary accounts (too much detail)

• Accounts placed in the wrong account type category

• Misplaced subaccounts

QuickBooks Required Accounts

The accounts listed here are required for specific functionality of a transaction. If you have previously removed the account, QuickBooks re-creates it when you use a transaction that depends on that specific account. Additionally, these accounts are automatically created when a related transaction is opened for the first time:

• Accounts Receivable

• Inventory Asset

• Undeposited Funds

• Accounts Payable

• Payroll Liabilities

• Sales Tax Payable

• Opening Balance Equity

• Retained Earnings

• Cost of Goods Sold

• Payroll Expenses

• Estimates (nonposting)

• Purchase Orders (nonposting)

Making an Account Inactive

Marking an account inactive is usually the best choice when you have duplicate or extra list entries on your chart of accounts. Making an account inactive removes it from any drop-down list where the item can be selected. However, for reporting periods where the account has a value, any reports generated will include the inactive account balance.

Do you need to mark several accounts as inactive? Select the Include Inactive checkbox at the bottom of the chart of accounts list, shown in Figure 4.18. You can mark any list items you want to become inactive by clicking in front of the list item name. If Include Inactive is grayed out, right-click an account and choose Make Account Inactive. You now have the option to place a checkmark in the Include Inactive box.

Figure 4.18. Easily mark accounts inactive from the Chart of Accounts dialog box.

In the future, if you try to use an inactive account, QuickBooks will prompt you to choose Use It Once or Make It Active.

Merging Duplicated Accounts

Another method to remove duplicated accounts is to merge the similar accounts. To perform a chart of accounts merge, both accounts must be in the same chart of accounts category; in other words, you cannot merge an Asset-type account with a Liability-type account.

Before merging accounts, perform a backup of your data, just in case the result is not what you expected. To create a backup of your file, from the menu bar, select File, Backup Company and follow the prompts. When the accounts are merged, all transactions previously assigned to the removed account now appear as if they were always assigned to the remaining account.

To merge two accounts, follow these steps:

1. From the menu bar, select Lists, Chart of Accounts, and highlight the account you want to remove with the merge. With the account highlighted, press Ctrl+E on your keyboard to open the Edit Account dialog box.

2. If you are using account numbering, replace the account number with the account number for the account you want to retain. Optionally, you can type the exact spelling of the name of the other account you are merging with this one into the Account Name field.

QuickBooks cautions you that the name is already being used and asks whether you want to continue (see Figure 4.19). If you do not get this message, you didn’t accurately type the name or account number. You need to try again.

Figure 4.19. QuickBooks offers a word of caution when you are merging two charts of accounts list entries.

3. Click Yes to merge the accounts.

Modifying an Account in the Chart of Accounts

The mistake most often made when creating your own chart of accounts is assigning the wrong account type. QuickBooks provides additional subcategories under the six standard accounting categories, as identified in the “Account Types” section at the beginning of this chapter.

The Add New Account dialog box, previously shown in Figure 4.1, can help you reduce errors that occur when creating a new account. When you select an account type, QuickBooks provides a general description of the proper use of the selected account.

Changing an account type can also be advantageous when you want to fix future transactions and prior-period transactions. For example, suppose you created a Current Asset account type instead of the correct Expense account type. Simply changing the account type via the Edit Account dialog box (see following steps) corrects all prior-period and future transactions to be assigned to the new account type.

However, you cannot change an account type or merge a chart of an account if subaccounts are associated with that chart of account list item. For more information, refer to the note on page xxx.

To change an account type, follow these steps:

1. From the menu bar, select Lists, Chart of Accounts (or press Ctrl+A). The Chart of Accounts dialog box displays.

2. Select the account for which you want to change the type.

3. From the Account drop-down list, select Edit Account (or press Ctrl+E to open the account for editing). The Edit Account dialog box displays.

4. Click the drop-down arrow next to Account Type (see Figure 4.20) and choose a new account type from the list.

Figure 4.20. You can usually, but not always, change an account type.

5. Click Save & Close.

Assigning or Removing a Subaccount Relationship

Often in accounting reports, you have specific accounts for which you want to see a more detailed breakdown of the costs. You can get this breakdown easily by creating the main account and associating subaccounts with the main account.

Figure 4.21 shows Utilities as a main account, with an indented subaccount for each type of utility expense.

Figure 4.21. The chart of accounts shows a subaccount relationship to the parent account.

To edit an existing account to be a subaccount of another main account, follow these steps:

1. From the menu bar, select Lists, Chart of Accounts (or press Ctrl+A). The Chart of Accounts dialog box displays.

2. Select the account that you want to be a subaccount of another account.

3. From the Account drop-down list, select Edit Account (or press Ctrl+E to open the account for editing). The Edit Account dialog box displays.

4. Select the Subaccount Of checkbox and, from the drop-down box, choose the account you want it to be associated with. (It must be of the same account type.)

5. Click Save & Close.

Users can assign a subaccount that is only in the same general account type. For example, an Expense type cannot be a subaccount of a Current Asset type account (see Figure 4.22).

Figure 4.22. Assigning a subaccount to a parent account.

Another method for changing the assignment of a subaccount to a main account is easily done directly from the list view. To remove or add a subaccount directly from the list, follow these steps:

1. In the Chart of Accounts dialog box, click with your cursor over the diamond in front of the list item (see Figure 4.23).

Figure 4.23. Dragging the diamond in front of an account is an easy way to change the subaccount relationship within the same category type.

2. Drag the diamond so the selected account is immediately below the main account grouping.

3. Drag the diamond to the right to create a subaccount–account relationship to the main account. Or optionally, drag the diamond to the left to remove the subaccount relationship.

The chart of accounts list shows the corrected relationship (see Figure 4.24).

Figure 4.24. The chart of accounts looks like this after changing the subaccount relationship.

Financial reporting is more accurate when you take the time to review and correct your chart of accounts setup. Often you can manage the information better when you group similar income or expense accounts using the subaccount feature.

Finding and Fixing Item List Errors

Do you want to quickly fix some of the most common errors in QuickBooks? Reviewing and correcting items in QuickBooks can be an efficient way to repair a company’s data file accounting errors. Often the reason for misstatement on a company’s financials can be traced to incorrect setup of items. Some indicators of this might be understated revenue, negative costs, or just an overall lack of confidence in the financials. This is because QuickBooks items are “mapped” to the chart of accounts; if an item is improperly assigned to the wrong type of an account, this could create errors in accurate financial reporting.

To help you when incorrectly set-up items might not be so apparent, the following sections offer a few methods for reviewing the item list.

Reviewing the Item List on the Computer Screen

Adding and removing columns you view in the Item List can help you notice any setup errors that exist.

Now you can conveniently review the list on the computer screen for items that do not have a cost of goods sold or expense account assigned, or that might have the wrong account assigned. Not having an expense account assigned becomes problematic when the item is both purchased and sold; both types of transactions report only to the single account selected as the Income Account.

See the “Correcting One-Sided Items” section of this chapter for a more detailed discussion of how to properly fix this issue. Refer back to Figure 4.3 for details on creating a two-sided item in QuickBooks.

Item Listing Report

Another method for reviewing the Item List setup is to use the Item Listing report (by choosing Reports, List, Item Listing from the menu bar). Click Customize Report from the top left of the displayed report. In the dialog box that displays, click the Display tab to select the columns to view. Useful columns include Item, Description, Type, Account, Asset Account (for inventory items only), COGS Account, and Sales Tax Code, as in Figure 4.26. Whenever the item is used on a purchase or sales transaction (such as an invoice, a sales receipt, a bill, a check, and so on), these columns show where QuickBooks posts the transaction on the chart of accounts.

Figure 4.26. Modify the item listing report to provide just the details you need.

What exactly are you looking for on the list item report? First, look for items that you use on both purchase and sales transactions but that are missing the COGS Account, as shown in Figure 4.27. Alternatively, you might look for items with the incorrect account assigned. If you collect sales tax, be sure the correct sales tax code is selected.

Figure 4.27. Review the Item Listing report for item setup errors or missing information.

→ For a more detailed discussion of sales tax in QuickBooks, see “Sales Tax Setup,” p. xxx (ch9).

Profit & Loss Standard Report

If you suspect errors with your financials, drilling down (double-clicking with your cursor) on the Total Income, Cost of Goods Sold, or Expense totals on a Profit & Loss Standard report might provide clues to the mistakes. To generate this report for your data, follow these steps:

1. From the menu bar, select Reports, Company & Financial, Profit & Loss Standard.

2. On the Profit & Loss Standard report, double-click the Total Income subtotal, shown in Figure 4.28. A Transaction Detail by Account report displays, showing each line of detail that makes up the amount you viewed on the original Profit & Loss Standard report.

Figure 4.28. Drill down to review the details of your business Total Income dollars.

3. On the Transaction Detail by Account report, click Customize Report. In the dialog box that displays, click the Filters tab. In the Choose Filter pane, scroll down to select Transaction Type.

4. In the Transaction Type drop-down list, select Multiple Transaction Types, as shown in Figure 4.29. The Select Transaction Type dialog box displays. Click to place a check next to each transaction type that normally would not be reported to an income account, such as a check, bill, credit card, and so on; then click OK.

Figure 4.29. Filter the report to include transaction types that should not be reporting to income accounts.

The resulting report now shows all purchase type transactions (or whatever transaction types you selected) that were recorded to income accounts. In the example in Figure 4.30, a vendor bill transaction type displays in the totals for income. This is because, on the vendor bill, an item was used that had only an income account assigned. After you determine that you have these types of errors in posting, you should review your Item List for any one-sided items. The next section discusses this topic.

Figure 4.30. The Transaction Detail by Account report shows a purchase-type transaction reporting to an income account in error.

As with any data correction in QuickBooks, you should make a backup of the data before attempting these methods. The preferred backup method is a QuickBooks backup (a file with the extension of .QBB). You can create a data backup by selecting File, Back Up Company from the menu bar. If the result after fixing items is not what you expected, you can easily restore the backup file.

This section showed some effective ways to determine whether your items are incorrectly set up. In the next section, you learn the methods of fixing these item setup errors in QuickBooks.

If you are an accounting professional, you will want to review your client’s item setup and possible errors using the Client Data Review features and tools available exclusively with QuickBooks Accountant 2014. Appendix A, “Client Data Review,” has more information.

Correcting One-Sided Items

A one-sided item is an item that has only one account assigned. See Figure 4.31, which shows the Framing item setup. Notice the only account assigned to this item is Labor Income. When this item is used on a customer invoice, it increases the Labor Income amount. However, if the same item is used on a check or bill, the amount of the expense records directly to the Labor Income account as a negative number. This would cause both income and cost of goods sold to be understated.

Figure 4.31. Items with only one account assigned can misstate financials if used on both purchase and sales transactions.

You should not have one-sided items if you plan to use the same item on both purchase transactions and sales transactions.

You might have several items on your list that can qualify to be one sided because they are used only on sales transactions and never on purchase transactions, or always on purchase transactions and never on sales transactions. What can become problematic is that, at some time, a user might mistakenly use the item on the other transaction type.

Inventory items default as two sided. For the other item types, I recommend that you create them all as two-sided items (see Figure 4.32). You do so by selecting the checkbox labeled This Service Is Used in Assemblies or... (the rest of the label depends on what item type is selected) in the New or Edit Item dialog box.

Figure 4.32. The corrected one-sided item now has both an expense and an income account assigned.

The results are new Purchase Information and Sales Information panes. Now the “Account” has become an “Income Account” and you have a new Expense Account field to assign your proper expense account. This way, if you use the item on both a vendor bill or check and a customer sales transaction, your financials show the transaction in the proper account.

When you make the change and click OK, QuickBooks might open a dialog box (if this item has been used in a transaction) prompting you to update existing transactions or apply the change only for future transactions. The decision made at this time to change the account assignment is critical to your financials. Clicking Yes to updating existing transactions causes all previous transactions to now report to the new account assigned. If you are attempting to fix historical transactions, this can be a time-saving feature because you do not have to change each individual transaction manually.

Click No if you do not want to update prior-period transactions. This option might be recommended if you have already prepared your tax data with QuickBooks financial information. The change then takes effect only for future transactions.

If you ignore the message, in this example, QuickBooks posts the expense to the revenue account selected in the New or Edit Item dialog box. The effect of this is to understate revenue (an expense is a negative amount in the revenue account) and to understate your costs (because no cost was recorded to an expense account). Both of these messages distort your financial details, so be sure you don’t disregard this important message.

Making an Item Inactive

If you have found errors in your Item List, a safe method for avoiding future mistakes by using the incorrect items is to make them inactive. An inactive item still displays in reports but is not included in any drop-down lists on sales or purchase transactions.

To mark an item as inactive, follow these steps:

1. From the menu bar, select Lists, Item List.

2. Select the item you want to make inactive by clicking it once.

3. Right-click the selected item.

4. Select Make Item Inactive.

5. If a warning message displays (for example, stating that the item is part of a group), click Yes to make the item inactive or click No to cancel your change.

Making an item inactive does not have any impact on the company’s financials. If you want to correct your financials, you need to choose one of two options:

• Edit the account assignment on each item. This gives you the option to fix all previous transactions that used this item retroactively. (Use this cautiously because it changes prior-period financials.) The effect of changing an account assignment on an item is the same as the one discussed in the section “Correcting One-Sided Items” in this chapter.

• Create a General Journal Entry transaction to reassign the amounts from one account to another. This method is typically completed by your accountant.

Before making changes, make a backup of your data, and always discuss the method you choose with your accountant.

Except for inventory items, generally no ramifications apply when marking a list item inactive. Only inventory items with a zero quantity on hand should be made inactive. See Chapter 6 for more details on handling inventory errors.

Merging Items

If you have duplicated items, one easy method for fixing the problem is to merge items of the same type. When merging two items, you first need to decide which item is going to be merged into the other item. The item merged will no longer exist on your Item List.

To merge two items, follow these steps:

1. From the menu bar, select Lists, Item List.

2. Review the list for duplicate items; note the name of the item you want to remain.

3. Double-click the item you want to merge into another item. The Edit Item dialog box displays.

4. In the Item Name/Number field, type the name exactly as you noted it in step 2. You can also use the Copy And Paste command to avoid typing lengthy names or long numbers.

5. Click OK to save your change. QuickBooks provides a warning message that you are merging items (see Figure 4.36).

Figure 4.36. A warning displays when you merge two items.

Carefully consider the consequences of merging before you do it (and be sure you have a backup of your QuickBooks file). All the historical transactions merge into the remaining list item.

Creating Items As Subitems

Creating an item as a subitem of another item is one way to easily organize reports for a group of similar items. Your accounting data is not affected by having or not having items as subitems.

To make an item a subitem of another item, follow these steps:

1. From the menu bar, select Lists, Item List.

2. Double-click the item you want to assign as a subitem. The Edit Item dialog box opens.

3. Select the Subitem Of checkbox, in Figure 4.37.

Figure 4.37. The Sitework Sub service item is being made a subitem of Subs (short for Subcontracted).

4. From the drop-down list, select the item you want to relate this subitem to.

You can create a subitem only within the same item type. For example, service items cannot be subitems of inventory items.

You can also rearrange the list by assigning a subitem to another item by using your mouse pointer on the Item List to move the item up or down and to the right or left. This functionality is the same as the example discussed in the section “Assigning or Removing a Subaccount Relationship” in this chapter.

You have now completed the important steps in getting your file ready to work with. In the next few chapters, you learn about inventory, vendors, customer activities, and much more.