Understanding the Chart of Accounts in QuickBooks Online
If you’re new to bookkeeping, the phrase “Chart of Accounts” may sound intimidating. But in reality, it’s simply the foundation of how your business organizes money inside QuickBooks Online.
Think of it as the filing cabinet for your finances, the structure behind your financial reports.
Every dollar your business earns, spends, owns, or owes gets assigned to an account in the Chart of Accounts. Once you understand how it works, reading reports and keeping organized books becomes much easier.
The Chart of Accounts is “the hub of your accounting” because every transaction in QuickBooks connects to one or more accounts.
What Is a Chart of Accounts?
A Chart of Accounts (often called the “COA”) is a complete list of all the financial accounts used by your business.
It helps organize:
• Money you own
• Money you owe
• Income you receive
• Expenses you pay
When you record transactions in QuickBooks, they are categorized into these accounts automatically or manually.
For example:
Transaction : → Accounts Affected:
Customer pays invoice → Bank Account + Income
Buy office supplies → Bank Account + Office Supplies Expense
Purchase equipment → Bank Account + Fixed Asset
Pay credit card bill → Bank Account + Credit Card Liability
Every transaction affects at least two accounts.
The Main Types of Accounts
The Chart of Accounts is divided into several major categories.
1. Assets
Assets are things your business owns.
Examples:
• Checking accounts
• Savings accounts
Accounts receivable
• Equipment
• Vehicles
• Inventory
• Undeposited Funds
Asset accounts usually appear on the Balance Sheet.
These accounts usually show current balances because they represent what your business has
right now.
2. Liabilities
Liabilities are amounts your business owes.
Common examples:
• Accounts Payable
• Credit cards
• Sales tax payable
• Payroll tax payable
• Loans payable
• Lines of credit
Liability accounts also appear on the Balance Sheet.
These accounts also show balances because they represent debts or obligations.
3. Equity
Equity represents the owner’s value in the business.
This represents the owner’s claim in the business after liabilities are subtracted from assets.
Common examples:
• Owner’s Investment
• Owner Contributions
• Owner Draws
• Retained Earnings
• Opening Balance Equity
Equity accounts appear on the Balance Sheet.
Equity accounts help track money the owner puts into or takes out of the company.
4. Income
Income accounts track money coming into the business.
These accounts track money earned from business operations.
Common examples:
• Sales Income
• Service Revenue
• Product Income
• Consulting Income
• Interest Income
Income accounts feed directly into your Profit & Loss report.
5. Expenses
Expense accounts track money leaving the business.
Common examples:
• Rent
• Utilities
• Office Supplies
• Advertising
• Insurance
• Meals
• Repairs and Maintenance
• Bank Fees
• Software Subscriptions
Expense accounts appear on the Profit and Loss report.
Unlike bank accounts, expense accounts usually do not show ongoing balances. Instead, they track totals for a specific time period, such as a month or year.
6. Cost of Goods Sold
These are direct costs related to products or services sold.
Common examples:
• Product costs
• Materials
• Direct labor
• Freight-in
• Subcontractors tied directly to jobs
Cost of Goods Sold appears on the Profit and Loss report and reduces gross profit.
Why Some Accounts Show Balances — and Others Don’t
One of the most confusing parts for beginners is understanding why certain accounts show balances while others only appear on reports.
Balance Sheet Accounts
These include:
• Assets
• Liabilities
• Equity
These accounts show what your business owns or owes at a specific moment in time.
Profit & Loss Accounts
These include:
• Income
• Expenses
• Cost of Goods Sold
These accounts track activity over a period of time rather than a running lifetime balance.
Why the Chart of Accounts matters
The Chart of Accounts controls how your financial statements look. When transactions are
categorized correctly, QBO can produce accurate reports such as:
• Profit and Loss
• Balance Sheet
• Statement of Cash Flows
• Accounts Receivable Aging
• Accounts Payable Aging
• Sales Tax Liability reports
A clean Chart of Accounts helps you understand profitability, track cash flow, prepare taxes, and make better business decisions.
Account detail types
In QBO, each account has an Account Type and a Detail Type.
For example:
• Account Type: Expense
• Detail Type: Advertising/Promotional
• Name: Marketing Expense
The Account Type determines where the account appears on reports. The Detail Type gives QBO more specific classification.
The account type is especially important. Choosing the wrong type can cause transactions to appear on the wrong financial statement.
Parent and sub-accounts
QBO allows you to create sub-accounts to organize activity in more detail.
Example:
Marketing Expense
: Online Ads
: Print Advertising
: Sponsorships
This lets you see both the total marketing cost and the breakdown by category.
Another example:
Vehicle Expense
: Fuel
: Repairs
: Insurance
: Registration
Or:
Meals
:50% Deductible
:100% Deductible
:Non-Deductible
This keeps reports cleaner while still giving detailed tracking.
Sub-accounts are useful, but too many can make reports cluttered.
Keep Your Chart of Accounts Simple
One of the biggest mistakes small businesses make is creating too many accounts.
It may seem helpful at first, but over complicated account lists often create confusion later.
Instead of creating dozens of similar expense accounts, keep things organized and simple.
Typical small business Chart of Accounts
A simple service business might have accounts like:
Assets:
• Checking
• Savings
• Accounts Receivable
Liabilities:
• Accounts Payable
• Credit Card
• Sales Tax Payable
• Loan Payable
Equity:
• Owner Contributions
• Owner Draws
• Retained Earnings
Income:
• Service Income
• Consulting Income
Expenses:
• Advertising
• Bank Charges
• Insurance
• Meals
• Office Supplies
• Rent
• Software
• Telephone
• Travel
• Utilities
• Wages
Avoid unnecessary duplicates like:
• Office Pens
• Printer Ink Purchases
• Miscellaneous Small Office Purchases
Simple bookkeeping is usually more accurate bookkeeping.
Best practices
• Keep the Chart of Accounts simple and useful. Avoid creating separate accounts for every
vendor. For example, use “Software Subscriptions” instead of separate expense accounts for
QuickBooks, Microsoft, Adobe, and Zoom.
• Use consistent naming. Choose names that are clear to you, your bookkeeper, and your tax
preparer.
• Do not delete accounts with transaction history. In QBO, you usually make unused accounts
inactive instead.
• Review the Chart of Accounts periodically. Merge duplicates, inactivate unused accounts, and clean up unclear categories like “Miscellaneous Expense.”
• Be careful with Opening Balance Equity. It should usually be cleared out after setup once
beginning balances are properly recorded.
Should You Use Account Numbers?
QuickBooks Online does not require account numbers by default, but you can enable them.
Some accountants prefer numbered accounts because they help keep financial statements organized.
Example numbering structure:
Range Account Type
1000s Assets
2000s Liabilities
3000s Equity
4000s Income
5000s Expenses
Best Practice: Work With a Bookkeeper or Accountant
QuickBooks comes with default accounts already created, but every business is different.
A restaurant, contractor, consultant, and online store all need different reporting structures.
A properly designed Chart of Accounts helps you:
• Understand profitability
• Prepare taxes more easily
• Track business performance
• Make better decisions
• Avoid bookkeeping confusion later
Where to find it in QBO
In QuickBooks Online:
Go to Settings > Chart of Accounts.
From there, you can:
• View accounts
• Add new accounts
• Edit accounts
• Make accounts inactive
• Run account registers
• See transaction history
• Reconcile bank and credit card accounts
Simple explanation
The Chart of Accounts is QBO’s filing system for your money. It tells QuickBooks where each
transaction belongs, which then determines how your financial reports are created. A well-organized
Chart of Accounts gives you cleaner books, better reports, and easier tax preparation.
Final Thoughts
The Chart of Accounts is the backbone of your bookkeeping system in QuickBooks Online.
Once it’s organized correctly, everything else becomes easier:
• Categorizing transactions
• Reading reports
• Understanding profit
• Preparing for taxes
The goal is not to create the most complicated system possible — it’s to create a system that gives you clear, useful financial information.
If your Chart of Accounts feels messy or confusing, cleaning it up can dramatically improve your
bookkeeping and reporting.
Helpful Resources
