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QuickBooks Chart of Accounts Clean Up

One of the most common functions Certified Public Bookkeepers (CPBs) perform for their QuickBooks clients is "cleaning up" the chart of accounts. Many CPBs assist their clients when setting up their charts of accounts in QuickBooks. However, many clients set up their charts of accounts without consulting their CPB. This article discusses some of the ways that CPBs can "clean up" their clients' charts of accounts after the accounts already have been set up.

CPBs can review a client's chart of accounts by selecting "Accountant & Taxes" and then "Account Listing" from the "Reports" menu. The "Account Listing" report displays the account type, balance, description, and tax line for each active account. Many QuickBooks users create accounts that are not needed or that are duplicates of existing accounts. CPBs may want to remove such accounts from the chart of accounts. QuickBooks allows users to remove accounts by deleting, merging, or inactivating them.

Deleting Accounts
QuickBooks allows users to delete accounts that never have been used. Users can delete unused accounts as follows:

  • Select "Chart of Accounts" from the "Lists" menu.
  • Select the account to be deleted.
  • Select "Delete" from the "Account" menu button.

Users cannot delete an account that (a) has subaccounts associated with it, (b) has items assigned to it or that is used by payroll items, or (c) has transactions posted to it or that is used in transactions. However, QuickBooks users can delete an account that has subaccounts associated with it if they either (a) delete the subaccounts or (b) associate the subaccounts with a different parent account before deleting the account. Likewise, QuickBooks users can delete an account that has items assigned to it by assigning a different account to the item before deleting the account. Even though an account that has transactions posted to it cannot be deleted, QuickBooks users can merge the account with a similar account if the account is a duplicate of another account that also has transactions posted to it. The following paragraph discusses merging accounts.

Merging Accounts
CPBs may want to merge accounts if a QuickBooks client used two or more similar accounts for posting the same type transactions. Accounts can be merged as follows:

  • Select "Chart of Accounts" from the "Lists" menu.
  • Select the accounts to be merged and select "Edit" from the "Account" menu button.
  • Verify that the accounts to be merged are the same "Type" and at the same level (i.e., both are parent accounts or both are subaccounts).
  • Edit the accounts to be merged if they are not the same "Type" or at the same level.
  • Change the name of the account that will not continue in use to the name of the account with which it is being merged.

Note - CPBs and their QuickBooks clients should be aware that merging accounts is irreversible and that merged accounts lose their history. If accounts need to be separated after they have been merged, QuickBooks users must set up a new account and record a journal entry to move transactions from the merged account to the new account.

Inactivating Accounts
CPBs may want to inactivate an account rather than deleting it or merging it with another account. (For example, an account used for tax purposes in a prior year may not be needed in the current year.) QuickBooks does not display inactive accounts in the chart of accounts or in drop-down lists that use accounts. However, QuickBooks retains the information associated with inactive accounts and displays the balances of inactive accounts in the general ledger and financial reports. QuickBooks users can inactivate accounts as follows:

  • Select "Chart of Accounts" from the "Lists" menu.
  • Select the account to be inactivated.
  • Select "Make Account Inactive" from the "Account" menu button.

QuickBooks allows users to inactivate accounts that have transactions posted to them, as well as accounts that have subaccounts associated with them. If an account with subaccounts is inactivated, QuickBooks automatically inactivates the subaccounts as well. However, inactivating a subaccount does not automatically inactivate the parent account.

If QuickBooks users want to activate inactive accounts, they should:

  • Select "Chart of Accounts" from the "Lists" menu.
  • Check the "Include inactive" box at the bottom right of the "Chart of Accounts" window.
  • Click the "X" symbol beside an inactive account to activate the account.

Changing the Account Type
QuickBooks users often associate accounts with the wrong account type. Incorrect account types can cause financial reports to be incorrect since QuickBooks summarizes financial reports based on account type. Consequently, CPBs may need to change the account type associated with a particular account. For example, merged accounts must be the same account type. Each account must be associated with one of the following account types:

  • Bank.
  • Accounts Receivable.
  • Other Current Asset.
  • Fixed Asset.
  • Other Asset.
  • Accounts Payable.
  • Credit Card.
  • Other Current Liability.
  • Long Term Liability.
  • Equity.
  • Income.
  • Cost of Goods Sold.
  • Expense.
  • Other Income.
  • Other Expense.

QuickBooks users that want to change account types should:

  • Select "Chart of Accounts" from the "Lists" menu.
  • Select the applicable account.
  • Select "Edit" from the "Account" menu button.
  • Select the appropriate "Type" from the drop-down list in the "Edit Account" window.

QuickBooks does not allow users to change the account type for an account with subaccounts. Likewise, QuickBooks does not allow users to change the account type for a subaccount. The account type for a subaccount must match the account type for the parent account. Consequently, to change the account type for a parent account and each of its subaccounts, QuickBooks users must temporarily change subaccounts to parent accounts as follows:

  • Select "Chart of Accounts" from the "Lists" menu.
  • Select the applicable subaccount.
  • Move the mouse to the small diamond symbol at the left of the subaccount name. When the mouse pointer touches the diamond, the pointer changes to a four-headed arrow that allows the subaccount to be dragged to a new level in the chart of accounts.
  • Click and drag the diamond to the left until the subaccount name is aligned the same as the parent account.
  • Repeat the preceding steps for each subaccount associated with the applicable parent account.

Next, users should change the account type for the parent account. Users then can change the account type for the associated subaccounts and correspondingly check the subaccount box and select the name of the applicable parent account in the "Edit Account" window. (Alternatively, QuickBooks users can click and drag the diamond beside each subaccount to the right and below the parent account name in the chart of accounts after changing the account type for the subaccount.)

Note - QuickBooks users cannot change accounts receivable or accounts payable accounts to other account types. Likewise, users cannot change the types associated with other accounts to accounts receivable or accounts payable types. In other words, QuickBooks does not allow users to change an account's type to or from accounts receivable or accounts payable. In addition, QuickBooks does not allow users to change the account type associated with automatically created accounts, such as sales tax payable, undeposited funds, retained earnings, and opening balance equity.

Collapsing Accounts
CPBs may want to collapse accounts when printing financial reports. The collapse feature in QuickBooks allows users to hide subaccounts and print only parent accounts. The collapse feature is available when generating certain financial reports from the "Reports" menu. Users can click the "Collapse" button in the top row of the report to hide subaccounts. After collapsing a report, users can click the "Expand" button to display subaccounts. QuickBooks automatically generates reports that display subaccounts. QuickBooks does not allow users to set up collapsed reports as a preference.

"Require Accounts" Preference
CPBs may want to advise their QuickBooks clients to turn on the "Require accounts" preference. The "Require accounts" preference prohibits clients from processing a transaction without assigning an account. Users can turn on the preference by (a) selecting "Preferences" from the "Edit" menu, (b) selecting "Accounting" from the "Preferences" scroll box, and (c) checking the "Require accounts" box in the "Company Preferences" tab.

Although it seems logical to turn on the "Require accounts" preference, some CPBs may prefer that their clients not assign any account rather than assign an incorrect account when processing a transaction. The "Uncategorized Expenses" and "Uncategorized Income" accounts discussed in the following paragraph may make it easier for CPBs to correct an uncategorized transaction than to correct an incorrectly posted transaction. In that case, the "Require accounts" preference should not be checked. However, other CPBs prefer that their clients use the "Ask My Accountant" feature and have their clients check the "Require accounts" preference.

Uncategorized Expenses and Income
If the "Require accounts" preference is not checked, QuickBooks users can process transactions (such as writing checks) without assigning an account for posting the transaction. QuickBooks automatically posts all transactions processed without an account to the "Uncategorized Expenses" or "Uncategorized Income" accounts. QuickBooks automatically creates the "Uncategorized Expenses" account the first time a user enters an opening balance for a vendor. Similarly, QuickBooks automatically creates the "Uncategorized Income" account the first time a user enters an opening balance for a customer. Even if a user does not post an opening balance for any vendor or customer, QuickBooks automatically creates the "Uncategorized Expenses" and "Uncategorized Income" accounts the first time a user processes a transaction without an account if the "Require accounts" preference is not checked.

If the "Require accounts" preference is not checked, CPBs should instruct their QuickBooks clients not to assign accounts when they are not sure which account to assign to a particular transaction. The CPB then can review the transactions posted to the "Uncategorized Expenses" and "Uncategorized Income" accounts and assign those transactions to the correct accounts.

"Ask My Accountant" Account
If the "Require accounts" preference is checked, QuickBooks users must assign an account when posting a transaction. QuickBooks automatically creates an "Ask My Accountant" account. CPBs should instruct their QuickBooks clients to assign transactions to the "Ask My Accountant" account when they are unsure which account to assign. The CPB can then review the transactions posted to the "Ask My Accountant" account and assign those transactions to the correct accounts.