I wish I could provide a customized ready to
use chart of accounts. However, since everyone has completely different
accounts and business activities, there really is no such thing as a "one size
fits all." What I have found most effective is to start with the standard
chart of accounts that QuickBooks has for your type of business.
To keep the list from becoming too large, you
should delete the things that you will never see, such as the Canadian types of
accounts. For corporations, you can delete the personal types of accounts
that are never used, such as Wage, Pension and Gift Income.
The income and expense accounts should be set up to mirror as closely as
possible the line items on your tax return, including the same groupings (i.e.
supplies with sub accounts for various kinds of supplies).
One modification that must be made to the
basic QB chart is to separate meals from travel. Meals are only 50% deductible,
while travel is 100%. What I like to do is have an expense account called
"MealsEnt" with a sub-account for "Meals" and another one for "Entertainment."
Travel should have sub-accounts for "Lodging," "Airfare" and "Rental Cars."
Whenever you have an expenditure that doesn’t fit properly into one of the
already established categories, set up a new one. You will have much more useful
information if you have more detailed categories. It is also true that the more
detailed information you report on your tax return, the less likely you are to
be selected for an audit by the IRS. There is no maximum number of income or
expense categories that you can report on a paper tax return. Combining too many
items under one heading, such as "Office Expense" gives the appearance
of less accurate books, as well as generates much larger numbers. IRS screeners
focus on the larger dollar amounts when deciding which tax returns to audit.
Likewise, do not use suspicious or overly generic sounding category names. Miscellaneous,
Other, Business Expenses and Sundry are
magnets for suspicious auditors.
Using sub-accounts is a good way to break out each kind of expense, and also
have a subtotal for the main category. Many real estate brokers set up a
sub-account for each of their agents to whom they pay commissions.
However, try not to use a lot of sub-accounts when the
Classes will do the job, such as
with property taxes & insurance.
In regard to Fixed Asset accounts for anyone, I would like to keep the number of
accounts to a minimum. One of my pet peeves with how too many people set up
their accounts is that they set up a new account for each individual item and
another one for its depreciation. This makes the chart of accounts far too long
I prefer to have just one account for all accumulated depreciation.
I prefer to have Fixed Asset accounts set up for each category of asset, much
like the types used in Lacerte: Vehicles, Equipment, Furniture & Fixtures,
Buildings, Land, etc. Each item posted to those accounts should have a good
description in the memo section of the register so that we will know what to
enter into the depreciation schedule in Lacerte.
Set up assets with original purchase dates, not with date you set up the QB
Set up an Income account called "Suspense." Post anything that you aren't sure
about to this. Do not leave uncategorized or it will look like you overlooked it
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This page was last updated:
Sunday, January 29, 2012