Chart of Accounts Limitations in QuickBooks

Hi there, Linda Artesani, Artesani Bookkeeping. So for today, I thought we'd kind of dive into the chart of accounts and get into some of the accounts that you can remove, some of the ones you can maybe merge, and they're going to implement the restriction on the chart of accounts. So there was an email that went out a few weeks ago that said if you go over 250 on your chart of accounts in Simple Start, Essentials, or Plus, you're going to need to move into the Advanced product. I have one client in the Advanced product and I'm having a lot of fun in it, but it's a little bit pricey. So I want to help you navigate it and show you how you can maybe shrink it down a little bit and keep it below the 250. They are grandfathering everybody into whatever they're at, but at the current moment. So if you've gone over 250 and you've got 368, like one of my customers does, He's locked in at 368. He can start to make them inactive, but if he tries to add another one, he can't really add another one until he gets below the 250 threshold, or he has to move up to the Advanced product. That's his only choice. So the grandfathering, it's okay if you stay static, but if you want to move up into the— he wants to start to add accounts like he will because he's an attorney, he's gonna have to move to Advanced. There's a lot of great features in it for a law firm, especially his size law firm. I think he's gonna really be happy when he moves into Advanced. I think he's gonna love the reporting. I love the reporting in it. I wish Intuit would give us it for our, for the accountants, for our free account. That would be great. But we got the Plus version right now, but it's a really fun thing. I mean, understand, it's got Fathom in it, so it's got a really great product in it to do robust reporting for really getting into some really good reports for advisory-level services that we can provide to the client. But let's move on. I'm going to bring you to my account that I have open right now. It's a Plus version. I'm going to show you in it what you can keep, what you can't keep, what you can rename, what you can't rename, what you can merge, what you cannot merge. So let's go to the account. So here's my law firm account, right? So it's my sample file that I use over and over again. And to access the Chart of Accounts, you can come right here to Accounting. And it brings you right to the Chart of Accounts. So I'm at 135. So you can see here the Manage the Usage Limits, and you can get into there and see that if you go over 250, you have to go to the Advanced product. So basically, there's some default accounts that count as part of those 250 that you cannot delete. I've had files that don't even have Undeposited Funds, which is kind of weird. But Undeposited Funds is one that you're not able to delete. I don't know if this one's in here, if it has it in here. Because some of the files don't have it. First time I ran across that, I was like, what? There's no Undeposited Funds? And I had to add it in. I don't see it. Let's do this. So there's a cool search bar. So here it is, Undeposited Funds. So if I come to Undeposited Funds here, and if I wanted to come over here and try to delete it, or make it inactive is what they call it, deleting. It's— well, looks like it's going to let me do it. And it says you cannot delete or edit the Undeposited Funds account. It's one of the default accounts that you're not allowed to touch. So that's one of the ones out of the $250. So it's really not giving you $250, it's really giving you more like $245 because there's some in here that count against that $250 that you cannot change. Let's go back to the list. And the other one is the opening balance equity account. So you need that. So if you have to set up your books for the first time, that's what the reasoning behind the opening balance equity account is. It's for that purpose, but it cannot be deleted. It can't be You know, it's default. You can edit the name of this one because I've done it many times. I've had clients just want to use it for something that's not really its purpose. So what I will do in a client's fund— so this, this file is a great example. You shouldn't have any money in this account. So this needs to be cleaned up. But what I'll do after I've cleaned it up for my customer, and this is a nice little ProAdvisor tip, I come over here because it lets me do this and I just write do not Use, do not use. Simple. That way, if they're in the, you know, a lot of times they're in the file and they go, oh, I think this is the beginning balance of this account, and they'll hit that account up. I don't want them to use that. So that's another tip, something I use with my customers so they know. The next one that you cannot remove, um, it's a default account, it's part of the balance sheet, is the retained earnings account. So that's an equity account as well. Let me get to the equity accounts here. So retained earnings, can't remove it. It doesn't— it's a special account. And what it's used for is at the end of the year with your profit and loss, you have your income, total income for the year, total expenses for the year. At the end of the year, you've got your profit or your loss. In order to clear all those accounts out for the new year, it gets put into retained earnings. So this is, like I said, a default account. You, you can change the name. Done that for clients too. Sometimes you want to use that and change the name if you want to. But you might just want to leave that one be. And that's another one that you just can't remove. Inventory. Inventory is another one that comes up as an account. It's up in the assets, inventory asset account. It's an account that most— a lot of companies don't need or don't use. You can— if you try to edit or delete these, it's just going to keep making it over and over again. It keeps recreating it. So inventory, Stock assets and cost of goods sold, can't remove them. Cost of sales, can't remove them. They're on here, you delete them, they come back. So just so you know, that's one that you can't remove. One of my ones that I cannot stand to even see on a file, and I'll bring it down to it, is this one, reconciliation discrepancy. Never used it in my whole 20 years of doing this in my business. I'm a stickler for if you got to reconcile it to the penny, it's not hard to reconcile in QuickBooks, right? QuickBooks Online especially. harder in the desktop days. It's easier here. There's no need to use it. Using the bank feeds, you should be able to reconcile, you should be able to figure out what the difference is. But again, this is an account that's used to report transactions. If you can't figure out your reconciliation, I have seen thousands of dollars in this account, which is why I wish it wasn't here. But it's the out for people maybe get stuck with a penny or two and they want to just clear out their reconciliation. It's what it's used for. It has no purpose on a tax return. So it's just going to be laid out there. But it's also an account that cannot be deleted. So you're stuck with it. You can't hide it. It's there. It's at the bottom. Don't really worry about it. Unapplied cash payment income is another one that you— it's going to stay here. It's just part of the functionality of QuickBooks. You cannot remove it. It's here. So unapplied cash payment income, another one that's just stuck there. It's used to report cash basis income. And you— it's there. You can't remove it. So just know that it's there. Any sales tax account is another account that you're going to see on the books that if it's there and you created it when you turn sales tax on, it's going to stay there. You're not going to be able to get that one off. So just know that you can't— you're not going to be able to delete it. So there's some that can be merged and some that are here that are not really— they might be part of the functionality of QuickBooks, but you, you can keep them, right? So one of them, Services, you can change the name. It's a great one to change the name for. So whatever your client is using for, you know, legal services, change the name to Legal Services. It's one I change all the time to make it specific to the person's business. Uncategorized Expense, Uncategorized Income, there's a lot of Uncategorized, Uncategorized Asset. Those accounts can be edited, but you can't delete them. You can't merge them, but you can rename them. So that, that is an account you can rename. But know that it's part of the functionality of the bank feed. So you can't really delete it or you, or you can't merge it. So just know that those are stuck there. So actually, it's more than 5, then there's those that are there and you can't really do anything with other than you can rename them. Owner's equity is another one that's used to represent your cash, your assets. I'm sure that's on here somewhere. It's one of the default ones that comes on when you turn your file on for the first time. So there's a handful of accounts that come by default. I already passed the equity. So owner's equity, you can rename these. If you're a partnership, you can change it to partnership, you know, distributions and contributions. You know, if it's an S corp, you're going to put your stockholder, your shareholder account distribution in there. You're going to change it to be specific to the entity type. But these are accounts that are in here and you can rename them, but you can't delete them. And Don't think you can even merge them. So they can't be deleted, that much I know. So if you wanted to edit an account, I'm going to show you how to edit it. So let's see. So I've got some income accounts in here for this law firm account. So let's see if I have just a plain one. So other primary income, we're just going to call it— well, you've got one here for legal fee income. I'm just going to call this trust Let's just call this estate planning income. So I'm just going to come over and hit Run Report, which is kind of not intuitive when you want to get into edit an account. You're hitting the word Run Report and then it says Edit. It's a dropdown list. So I'm just going to call this estate planning income. So whatever your client is, you can change the numbers. If you use numbers, another primary income, you can just come in here and change that. One of the ones I always change for my customers is the Ask My Accountant one. I tend to change the name to question account or questions for Lizzie, questions for Matthew, questions for whoever I'm working with. And then I change it to an other expense. I want it to sit at the bottom of the profit and loss as a sore thumb. It comes by default as a utility, which is really bizarre to me. But you can put that as an other expense, other business expense, other miscellaneous business expense for the detail type. And then I like to name it so that way I create reports for my customers. that automatically go out every month with transactions. I just don't know where they're going to go. So we have that feature in QuickBooks Online where you can schedule a report. And once a month, I have them kind of go out staggered. So I'm not getting hit with a bunch of information back from my customers. And I have it generated. So anything during the month before, it'll send a report out. I don't know what this goes, that goes, you know, and then the list will be there for them. Usually send it out in an Excel format. So that way it comes back and the client makes it easy for them. They can sort it by— it's a bigger list. Some of the contractors I work with are not real good about getting back to me and the list starts to grow. So you can sort it by check number. A lot of times it's handwritten checks. I don't know what they're for if I don't have access to the bank account. So, you know, that's a factor. Another account that you can— can be deleted by merging is the billable expense income and the markup. Those are 2 that if you're not going to use markup, you're not using that in your business, you can merge them into something else. So that's something to note. There's accounts that are specific to specific options when you set them up in this, the, into the settings over here in the gear. So if you have any shipping income, any discounts given, if you get into some of that with, you know, setting up some of the things in your sales section, then you will probably not be able to, you will not be able to, not probably, you won't be able to remove them if you've got the feature turned on. So, you know, you come over here. You go to Account Settings under the gear, and you can come in here and turn some of these features on. And then once you turn them on, some of these accounts will start to populate, right? So you can save these. And then of course, it'll create those accounts in, in the chart of accounts that you'll be able to access. You can see my number went up. And then those are specific to those settings. So again, you're going to have them there, you're not gonna be able to take them off. So you have to know that those are there. Of course, If you shut those features off, you are going to be able to take those accounts and make them inactive and take them off your list. So if you turn a feature on and you decide like billable expenses is not for me, you'll be able to turn those off. There's also your accounts receivable and accounts payable. In QuickBooks Online, and this came up the other day, the— One of the clients said to me, I want to use more than one accounts receivable. It's just not recommended. Not using— don't use more than one accounts receivable. Don't use more than one accounts payable. You know, you can work with— you need to do work like that, you can work with— sometimes if you can use a customer and a subcustomer, that will work for you. But really, I just— if you're going to do that, I know you could do it in desktop. It was a little bit more robust. Here, you just better stick to the one on that. Maybe if you need to do it for a barter-type transaction, make a barter account. Those are things you need to really look into. So a question came up to me this week from one of my support customers and they said, you know, I shut off one of the accounts in the system that was no longer necessary. We had stopped using this particular, like this company car, for example. So they said, you know what, we don't have the company car. We used it in the very beginning of 2018. We don't need it anymore. We're not going to use that. So they came over here and just took the account down and made it inactive. So what happened? The accountant got ahold of her once she sent all the reports. Actually, once the CPA came into the file, started running the reports, and he said to her, I need you to turn this back on. So she's like, why do I have to turn it back on? And he basically told her that the reason is, is you used it during the year. So she was unsure why she had to take it and Put it back on when they weren't going to use it. But as you can see here, this had a balance this year. And if you delete the account, it's still going to show on the profit and loss because it was used in the timeframe of the report. And it comes up as deleted and it just doesn't look good on the, on the financial statements. So keep it active until you're done with it. And then the following year you can turn it off once the year has been closed out and all the financial statements have been produced. So that's it in a nutshell for what a little short version of what you would look for and understand about the chart of accounts. Of course, we'll have a nice blog post that goes with this. But I hope you'll find this helpful in guiding yourself through maybe shrinking your chart of accounts down to less than 250 because Intuit is going to start rolling out those restrictions and start moving people up into Advanced if they have to be put into Advanced. But just know that if you have— if you're real close, you can kind of work around it. If you have to just start to take those chart of accounts down, you want to make them— an average chart of accounts usually has between 95 and 100, 120. It doesn't usually need to go to 250 unless you are a law firm or a nonprofit. Sometimes those need more. But for the most part, I mean, I have one client right now that's really close to the edge, and he's got way too many chart of accounts. He gets— he's very detail-oriented. So he gets really, really, really close to all the details. And it's not necessary with that. But he really— he's a little overboard on the detail, makes it hard to even work in the file. So just know that, you know, if you're around the 95, 125, you're probably in a good range for you for what you need. And, you know, you make— use a chart of accounts to make it work for your business. You want to make sure that if you want to track— if you have telephone, this is kind of an old-fashioned one, because most people only have the cell phone or Whatever. But if you have a telephone service, and then you want to track your cell phone, but all in all, it's all telephone, you can make those 2 subaccounts under telephone and have like telephone service for like if you have Nextiva or, you know, ring.com or whatever. And then you have your actual cell phone on the, on the books. When you collapse the report, it gives the accountant what he needs for the tax return. But it's— you don't need to have— if you're tracking it, when we want to track cell phones, see how much you did spend on cell phone, it's okay to have that. But just know that if you, if you're near that close amount, you probably— I mean, it's not probably worth the value. If that's the, if that's the account that's putting you over the $250, you probably just want to track your telephone and then just search it underneath the vendor to see which, what the totals are. You can always do a search under vendor to see the total of Nextiva versus, you know, AT&T. So that's my tip for this week. I hope that's helpful. I know it's a little bit of a longer video, but I kind of went through it quickly. If you have any questions, comments, please feel free to reach out. I'm here to help you. Nice to see you this week. Bye now.