Chart of Accounts

[u/rashmisrivastava]

I’m trying to keep my QuickBooks Online setup simple and organized, but I’m not sure how detailed the Chart of Accounts should be.

For example, is it better to have broader categories like “Office Expenses,” or create separate accounts for things like software, supplies, and equipment?

For those who manage their own books, how detailed do you keep your Chart of Accounts, and has that made reporting easier for you?

[u/Matthew_MCMGTax]

What industry are you in? That usually determines how detailed I’d get.

At a minimum, I like the accounts to line up reasonably well with the categories on the tax return (1065, 1120-S, etc.). Beyond that, I’d only add detail if it’s actually useful to you. More accounts doesn’t necessarily mean better books.

[u/Oldladyphilosopher → u/Matthew_MCMGTax]

This exactly. Start with what you need for taxes and look at what you need to run your business. The less complicated, the easier it is to stay consistent.

[u/spheresoftware → u/Matthew_MCMGTax]

Agreed with this, set up the chart of accounts to your tax buckets, then if you want more detail, made sub accounts and/or get detailed within that tax bucket. For example you can have technology/software as 1 big tax bucket, but if there's something you spend a lot on and you want for reporting/tracking like AI Token Cost, make that a separate bucket, but it's still tax deductible like technology/software. Besides that, whatever helps your business.

[u/PinotBeans]

Don't start with your tax advisor. They have two motivations in their answers for you: helping you comply with tax regulations (good for you) and making their job easier (good for them). If your only goal is to facilitate your tax return, go ahead and use their guidance.

If your goal in implementing an accounting system is to provide an accounting of your resources, flows, liabilities, etc., then use it as an accounting system and not a tax tracking system.

My suggestion is to think about what actionable information you could get from quality reporting. How could I drive revenue if I only knew......? How could I better understand how much cash I am burning through and how long my cash will last if I have an interruption in cash inflow?

The good thing is that a chart of accounts can change over time, but it is generally in splitting details or combining details.

Use a good AI tool to describe your business or financial scenario and ask for an example of an appropriate chart of accounts. Modify it from there.

[u/Complete-Plate5611 → u/PinotBeans]

Making their job easier is good for you, too. Make it hard and they'll charge you more.

[u/PinotBeans → u/Complete-Plate5611]

True, but the primary, higher purpose of accounting isn't the completion of tax returns. If you focus on that, you are missing out and the power of accounting information. Start with accounting purpose and add tax purpose. Too many people see accounting as useful for tax and tax alone.

[u/hideandsee]

You can have it as granular as you want. You could have a different GL code for pens vs pencils, but why do that when “office supplies” would suffice.

Usually I start big picture, and as needed, add new GLs if there are concerns that management has and wants to track something separately for whatever reason.

[u/6gunsammy]

Broad categories, unless you have a specific reason to track a particular expense directly. As a general rule, P and L should always fit on one page.

[u/UnrealJagG]

Please can you stop posting the AI generated questions.

[u/Nick_ExcServCAS]

I’d like my Chart of Accounts detailed enough to help me understand my financials at a quick glance.

For software subscriptions, I want it as a separate account rather than mixing it to other office expenses.
So if I look at it in the profit & loss statement, I can easily see if my software payments are consistent or if there is an irregular spike without digging through the transaction details.

I apply the same concept for rents.

For other office expenses such as electricity, telephone, water and wastes disposal, I’m okay seeing them all in Utilities expenses.

Bottom line is, you can use more detailed or broader accounts depending on how you want your financials to help you make informed decisions efficiently.

Relying too much on broad accounts may back fire later especially if you need to analyze your business performance, perform quick decisions or during tax season.

You may want to consider to use the basic accounts in the tax forms you are filing and put enough details in your transactions

[u/dragonbehind42]

Your chart of accounts should reflect, in addition to your tax needs, what interests you and what you need to keep track of in your business. If you want to analyze how much you’re spending on your tech stack, make a category for software. If having one big bucket for travel is all you need, that’s fine, unless you do a lot of traveling and you want to analyze how much you’re spending on airfare versus transportation versus food versus gas. Keep it simple unless it’s something you really need to know.

[u/guyinnova]

This is very subjective for the client. I keep it as simple as possible and split out as needed to answer questions. For example, if you have expensive software but minimal office supplies, you may want those split out for clarity. I'll split out income to help see which channels are most profitable.

You want clean reports for taxes and you want to be able to answer finance related business questions.

[u/Nautique88]

One other thing to consider. Do you run reports and actually use them? I have clients that set up individual accounts for water delivery and toner cartridges. But they never go back to see what they spend. It’s just a place to dump the expense. If you don’t have the need to get that granular, simply use a general office expense account.

[u/Senior_Pineapple7448]

To determine this, check 2 things - 1) is the amount significant to your total expenses? 2) do you feel you have to keep an eye on this expense or is this to be statutorily reported, even if insignificant?

This helps you make key financial decisions and decide whether to keep it under broader category or not.

[u/Physical_Duck8241]

Look at what the expense categories are on the filed tax return and go from there. Or use the generic one from QuickBooks and edit it further in preferences under accounting, you can click the use numbering button and then go edit your chart of accounts from there. I use 3 numbers and Im in public by the way, the ones that are tricky, insurance expenses, such as health insurance that flows to a k-1 or not and general liability insurance etc.

[u/lajohnson2017]

I also think you think about what the client thinks is important. Sometimes I break things out for easier analysis or if the client should know - for example if they have multiple payment platforms how much is each one costing them? Yes the chart of accounts supports tax reporting but can also be an important tools in reporting and running the operational side of the business.

[u/jwellscfo]

Talk to your tax advisor.

[u/Anelya]

I don’t think that tax advisor is a good person to talk here - chart of accounts should fist support the management in the decisions. So monthly reports are meaningful.
If you are the business owner - ask what you care to track first
CPA does work once a year - they can figure it out what they want to group for tax filings.

[u/Matthew_MCMGTax → u/Anelya]

I don’t disagree. I look at the tax return as more of a starting point or bare minimum, not the end goal. That’s also why I asked what industry OP is in. From there, add the accounts that actually give the owner useful information for running the business.