Understanding the chart of accounts in QuickBooks means understanding where the transactions will go when you post them. The chart of accounts is the backbone of your financial accounting. Every transaction you ever post will always affect at least two of these accounts. As an engineer, or any small business owner for that matter, you don’t need to have an accounting degree but you will want to have a solid working knowledge of your books and your bookkeeping. If you’re just starting out and you’re doing your own books, then you definitely need to know what you’re doing here. Even if you have a bookkeeper, you have to know enough to be able to determine if the bookkeeper knows what (s)he is doing. Most importantly, you have to know if/when the reports don’t look right and what might cause that.
Truly understanding the chart of accounts means understanding where the transaction will go when you post them. Which financial statements will be affected and where? When you understand this well, then you can reverse engineer the process. This means that you can look at the balance sheet and P&L account, see if something looks wrong and understand what’s behind that number and how it got there.
As a more informed business owner, you will know if you have a bookkeeper who is qualified and, if necessary, you will be in a better position to ensure that no one can take advantage of you.
If you haven’t already, watch the video above and let’s see how posting transactions to the accounts affects the balance sheet and your profit and loss.