- Chart of Accounts
- Items
- Class
- Customer Type
- Managing Lists
- Reporting on Lists
- Finding and Fixing Chart of Account Errors
- Finding and Fixing Item List Errors
This chapter is from the book
This chapter is from the book
This chapter is from the book
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.
There are many ways to resolve errors found on the chart of accounts. 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 chart of accounts listed here is 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)
NOTE
In earlier versions of QuickBooks, you might have accounts that have an asterisk (*) in front of the name to indicate a duplicate account name. This situation usually happens only when you did not select to use one of the sample charts of accounts. QuickBooks has certain accounts that it creates automatically.
For example, if you did not select a sample default chart of accounts, and you created your own Accounts Receivable account, QuickBooks automatically adds another Accounts Receivable account when an invoice transaction is opened. Because QuickBooks recognizes that you already have an Accounts Receivable account (the one you created), QuickBooks appends the name with an asterisk. You should merge your created account (the one without the *) into the QuickBooks-created account. See the later section titled “Merging Duplicated Accounts” for instructions on how to merge two like accounts.
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, as shown in Figure 4.13. 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 will now have the option to place a checkmark in the Include Inactive box.
In the future, if you try to use an inactive account, QuickBooks prompts you to choose between 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 with a Liability-type account.
Before merging accounts, perform a backup of your data, just in case the result is not what you expected. 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:
- 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.
- 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.
CAUTIONThis method potentially changes your financials and should be cautiously performed only after you have discussed the effect with the company’s accountant and have made a backup of the data file.
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.
- Click Yes to merge the accounts.
Figure 4.18. Easily mark accounts inactive from the Chart of Accounts dialog box.
Figure 4.19. QuickBooks offers a word of caution when you are merging two charts of accounts lists.
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CAUTION
Chart of accounts, customers, jobs, vendors, and other names lists can all be merged within their own type or category. Be careful—there is no undo function, making the action irreversible.
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 the following steps) corrects all prior-period and future transactions to be assigned to the new account type.
However, you will not be able to 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 131.
CAUTION
Exercise caution before changing an account type. The change affects any prior-period financials. If this consequence is a limitation for your company, a simple solution is to create a general journal entry to remove the amount from one account and assign it to another, dating the transaction in the current period. This method preserves the integrity of prior-period financials.
The Audit Trail report in QuickBooks does not track that a change was made to an account type. However, if your accountant views your data with QuickBooks Accountant 2013 software, the accountant can view the changes you or your employees made to an account type.
To change an account type, follow these steps:
- From the menu bar select Lists, Chart of Accounts (or press Ctrl+A). The Chart of Accounts dialog box displays.
- Select the account for which you want to change the type.
- 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.
- 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.
- Click Save & Close.
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NOTE
Not all account types can be changed. Accounts Receivable, Accounts Payable, Credit Cards (with online access configured), and any of the default accounts created by QuickBooks cannot be changed to a different type. In addition, for any Balance Sheet account that the account type is changed to a non-Balance Sheet account type, QuickBooks warns that you can no longer use a register for this account or enter transactions directly into this account.
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.
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Figure 4.21. Chart of Accounts showing a subaccount relationship to parent account.
To edit an existing account to be a subaccount of another main account, follow these steps:
- From the menu bar select Lists, Chart of Accounts (or press Ctrl+A). The Chart of Accounts dialog box displays.
- Select the account that you want to be a subaccount of another account.
- 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.
- Select the Subaccount Of checkbox and choose the account you want it to be associated with from the drop-down box. (It must be of the same account type.)
- 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).
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Figure 4.22. Assigning a subaccount to a parent account.
NOTE
If you need to change the subaccount to another General Ledger account type, first deselect the Subaccount Of checkbox. Click Save & Close to save the change. Then edit the account and change the type. You cannot change subaccount types when they are associated with a main account. You also cannot change the account type when that account has subaccounts associated with it.
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:
- 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.
- Drag the diamond so the selected account is immediately below the main account grouping.
- 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 viewed after changing the subaccount relationship.
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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.