QuickBooks Online Chart of Accounts Explained: A Complete Beginner’s Guide

Introduction: Why the Chart of Accounts Matters in QuickBooks Online

The Chart of Accounts is the foundation of your accounting system in QuickBooks Online. It acts as the central hub where every financial transaction in your business is organized. Every category or account you select when recording income, expenses, bills, or payments comes directly from the Chart of Accounts.

Understanding how the Chart of Accounts works in QuickBooks Online will help you:

• Organize transactions correctly

• Generate accurate financial reports

• Gain clear insight into your business performance

In this guide, we’ll explain what the Chart of Accounts is, how it works in QuickBooks Online, and how it impacts your financial statements.

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What Is the Chart of Accounts in QuickBooks Online?

The Chart of Accounts (COA) is a complete list of all the accounts used to track your business finances. Each account represents a specific category, such as cash, expenses, income, assets, or liabilities.

Every transaction you enter in QuickBooks Online affects at least two accounts:

1. The account where the money comes from or goes to (bank or credit card)

2. The account that explains why the money was received or spent (category)

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How to Access the Chart of Accounts in QuickBooks Online

To open the Chart of Accounts:

1. Sign in to QuickBooks Online

2. Select Bookkeeping

3. Click Chart of Accounts

This screen displays all your accounts and categories in one place.

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How Transactions Use the Chart of Accounts (Example)

Let’s say you buy staplers for your office.

• The bank account is already selected (where the money came from)

• You choose Office Supplies, which is an expense account

What Happens Behind the Scenes?

• Your bank account balance decreases

• Your Office Supplies expense increases

Back in the Chart of Accounts:

• Bank accounts show updated balances

• Expense accounts do not show running balances

Why? Because different account types track information differently.

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Understanding Account Types in QuickBooks Online

Balance Sheet Accounts (Show Current Balances)

These accounts show what your business owns or owes right now:

• Assets: Bank accounts, fixed assets (vehicles, buildings)

• Liabilities: Credit cards, loans, mortgages

• Equity: Owner investments and withdrawals

These accounts always display balances.

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Profit & Loss Accounts (Track Activity Over Time)

These accounts help measure profitability for a specific period:

• Income

• Cost of Goods Sold

• Expenses

Instead of balances, these accounts track totals over a selected date range, such as a month or year.

For example, you usually want to know:

• How much you spent on office supplies this month

• Not how much you spent since starting the business

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Adding and Managing Accounts in QuickBooks Online

QuickBooks Online comes with many accounts pre-set, but most businesses need to customize their Chart of Accounts.

You can:

• Add new accounts

• Rename existing ones

• Turn on account numbers (optional)

⚠️ Best Practice:
Always work with your accountant or bookkeeper when adding or modifying accounts to ensure accurate reporting.

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How the Chart of Accounts Affects Financial Reports

As you categorize transactions, QuickBooks Online automatically builds your financial statements.

Profit and Loss Statement

The Profit and Loss (Income Statement) summarizes:

• Income

• Cost of Goods Sold

• Expenses

• Net Income

For example:

• Office supplies expenses include the stapler purchase

• Total expenses subtract from total income

• The final result shows your net profit or loss

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Why This Matters

Accurate categorization in the Chart of Accounts ensures:

• Reliable reports

• Better tax preparation

• Clear financial decision-making

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Best Practices for Using the Chart of Accounts

• Keep your Chart of Accounts simple and organized

• Avoid duplicate or unnecessary categories

• Review it regularly with your accountant

• Categorize transactions consistently

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Final Thoughts

The Chart of Accounts is the backbone of QuickBooks Online accounting. When set up correctly, it helps you organize transactions, understand financial performance, and produce accurate reports.

Once you understand how it works, managing your books becomes clearer, faster, and far less stressful.

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QuickBooks Online Journal Entry Tutorial: How to Make Journal Entries Correctly

Introduction: What This Tutorial Covers

This QuickBooks Online journal entry tutorial explains how to create journal entries in QuickBooks Online and when they should be used. Journal entries are typically made to adjust specific accounts in your books, such as depreciation, prepaid expenses, or correcting errors.

⚠️ Important Note:
If you are not familiar with accounting concepts like debits and credits, it’s best not to create journal entries on your own. Incorrect journal entries can seriously affect your financial reports. However, if you already understand journal entries, this guide will walk you through the process step by step.

Remember the golden rule of accounting:

Total debits must always equal total credits.

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What Is a Journal Entry in QuickBooks Online?

A journal entry directly adjusts accounts in your Chart of Accounts, such as:

• Checking and savings accounts

• Accounts receivable and payable

• Prepaid expenses

• Fixed assets

• Loans and liabilities

• Expense and income accounts

Journal entries are commonly used for:

• Depreciation

• Amortizing prepaid expenses

• Month-end or year-end adjustments

• Correcting bookkeeping errors

If you’re unsure whether a transaction requires a journal entry, consult an accountant.

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Using the QuickBooks Online Sample Company (Best for Practice)

QuickBooks Online provides a sample company file, which is perfect for learning and testing without risking your real data.

You can access it through the Gear icon in QuickBooks Online. This allows you to practice journal entries safely and build confidence before working in your actual company file.

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How to Create a Journal Entry in QuickBooks Online (Step-by-Step)

Step 1: Open the Journal Entry Screen

1. Log in to QuickBooks Online

2. Click the + New button

3. Under Other, select Journal Entry

This opens the journal entry form, which includes:

• Journal number

• Date

• Debit and credit lines

• Description fields

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Step 2: Set the Journal Entry Date

Journal entries are usually dated at the end of the month, although this isn’t required.

Example:

• Journal Date: August 31, 2022

This is common for month-end adjustments like depreciation or accruals.

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Step 3: Enter a Journal Number (Optional but Recommended)

You can use a custom numbering system for tracking purposes.

Example:

• CPA-ABC-JD

This helps identify who created the entry, especially when multiple people access the books. QuickBooks allows duplicate journal numbers, so you don’t need to enable duplicate warnings unless required.

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Understanding Debits and Credits (Quick Overview)

Every journal entry:

• Affects at least two accounts

• Has at least one debit and one credit

• Must always balance

Example:
If you buy office supplies using cash:

• Office Supplies Expense → Debit

• Checking Account → Credit

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Example 1: Simple Journal Entry (Office Supplies)

Scenario:

You spent $125 on office supplies using your checking account.

Journal Entry:

• Credit: Checking Account – $125

• Debit: Office Supplies Expense – $125

This entry reduces your checking account balance and increases your expenses. Since debits equal credits, the entry is balanced.

Click Save and Close to record the entry.

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Example 2: Splitting One Payment Between Multiple Expenses

Scenario:

You spent $125 total, but:

• $75 on office supplies

• $50 on equipment rental

Journal Entry:

• Credit: Checking Account – $125

• Debit: Office Supplies Expense – $75

• Debit: Equipment Rental Expense – $50

The total debits ($125) still equal the total credit ($125), keeping your books balanced.

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Verifying the Journal Entry in Reports

After saving the journal entry:

1. Go to Reports

2. Open the Profit and Loss Statement

3. Set the date range (e.g., Last Month)

4. Review the expense accounts

You will see:

• Office Supplies Expense: $75

• Equipment Rental Expense: $50

• Checking account reduced by $125

This confirms the journal entry posted correctly.

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When Should You Use Journal Entries in QuickBooks Online?

Journal entries should be used sparingly and typically for:

• Accountant-recommended adjustments

• Depreciation and amortization

• Corrections that can’t be made through normal forms

For everyday transactions like sales and purchases, it’s better to use:

• Invoices

• Expenses

• Bills

• Bank feeds

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Final Thoughts

Journal entries are a powerful but advanced tool in QuickBooks Online. If used incorrectly, they can distort your financial reports. If you’re confident with accounting principles, they can help keep your books accurate and compliant.

If you’re unsure, always consult a professional bookkeeper or accountant before making journal entries.

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