Too many accounts on your chart of accounts – QuickBooks Online

I am going to be launching a new series of articles that is set to help business owners and accounting professionals get more out of their financials. In this series I will identify common mistakes that I see and how to resolve the situation.  In our demonstrations we will be using QuickBooks online for our accounting software but the theory and concepts would apply to any accounting software. Let’s get started!

One extremely common error I see is the utilization of too many accounts in the company’s chart of accounts. For a brief overview of the chart of accounts, watch our YouTube video “What is the Chart of Accounts?” (

Having too many accounts on your chart of accounts can actually hinder the amount of information provided by the Profit and Loss and Balance Sheet. For example, when analyzing financial statements you often want to perform trend analysis, in other words look for increases, decreases or baseline for certain items. But this can be extremely difficult if there are too many accounts since there is an increased chance of the same expense appearing in two separate accounts.

There are a number of different solutions to resolve this problem, as outlined below.

Delete the Account

The first option would be to delete unnecessary accounts. Don’t worry deleting an account will NOT delete all of the previous transactions that used that account. In fact it will not even actually delete the account (even though it is labelled that way in QBO). What QuickBooks actually does when you delete an account is make the account inactive, which will eliminate that account as an option in future transactions.

Use Sub-accounts 

The option on our road to clear and concise books is the utilization of sub accounts. A sub account is used when you want to break down a general account into more detailed accounts. For example, we can have a general (aka Parent) account “Auto Expenses” with sub accounts “Lease payments”, “Fuel” and “Maintenance”. Note, when you are using sub accounts correctly you should never be categorizing any transactions into the Parent account, all transactions should be coded to the sub account. The beauty in using sub accounts is the option to expand or collapse the accounts on any report that includes them. So continuing with the above example of Auto Expenses, we can choose on the fly whether we wish to see total auto expenses or a break down of the sub accounts whenever we run a report.

Merge Accounts

The last option is to merge accounts. This option should be used if there are two or more accounts that basically consist of the same type of transaction. In this case there is no need to have the transactions in separate accounts, in fact they should be in the same account to better track trends and project them over time. An example would be if you have an account for Cell Phone Expense and a separate account for Telephone Expense. You can really just merge these two accounts into one account called Communications Expense or Phone Expense etc. To merge accounts, you need to edit the account from you chart of accounts and change the name and detail type of one account to the information of the account you are trying to merge it with. This will change all of the previous or historic transactions. Warning, once two accounts are merged you cannot reverse or unmerge them.

QuickBooks Online Desktop Application – Initial Review

Hello everyone!

Recently released is a Windows Desktop application that allows you to access your QuickBooks Online Company file on your desktop. You will still need an internet connection and an active company file. The application is free to download, I will post a link to the Intuit Blog which describes the application in more detail and has a download link. The application is free to download and I strongly encourage QBO users to try out the application.

The benefits of using the desktop application rather that using an internet browser really boils down to ease of use and convenience. I personally noticed an improvement in speed while using the application versus the browser. Also those of you that are accustomed to using the tradition Desktop versions of QuickBooks (Pro, Premier and Enterprise) will be happy to be able to use the drop down menus to access your reports, transactions and other common areas in QBO.

The following is a link to the blog post and download link.

How to account for inventory shipping costs in QuickBooks

According to generally accepted accounting principles, the value of inventory is any and all costs incurred to get the product ready for sale. This includes any costs associated with receiving the product, including shipping fees (also known as inbound freight). When you add the shipping costs to inventory, the process is referred to as capitalization and it gives you a better representation of cost of goods sold.

Let’s take a look at a brief example of how to account for shipping costs. Assume you own a retail business that buys and resells widgets. You buy the widgets from your supplier at a cost of $5.00 each. You order 100 widgets and are charged $500.00 plus $50.00 for shipping the widgets to your warehouse. The average inventory valuation cost for each widget should no longer be just $5.00, it should be $5.50 in order to reflect the additional cost to get the items ready for resale (100 widgets purchased for $500 plus $50 for shipping).

Now let’s see how this example should be handled in QuickBooks Pro and Premier.

There are two different methods of accounting for this depending on how you are billed for the shipping costs.

If you are billed for the shipping by your supplier on the invoice for the widgets then just distribute the shipping costs between the items purchases. In the example above we would simply add the $50.00 to the amount we paid for the 100 widgets.
If you are billed separately through a third party vendor, there are a few extra steps in order to account for these costs properly.

First you would enter the invoice from your supplier for the widgets purchased. After you do this your inventory valuation per item in the above example will be $5.00.

The next step would be to create an expense account in your chart of accounts called “Clearing Shipping Expense”. When you receive the bill for the shipping expense from the third party, you will enter the $50 into this Clearing Shipping Expense Account.

The last step will be to adjust to inventory valuation. You do this in QuickBooks 2014 by clicking Vendors>Inventory Activities>Adjust Quantity/Value on Hand.


Inventory Valuation Adjustment Menu

Inventory Valuation Adjustment Menu


Then make the Adjustment Type – Total Value. The adjustment date will be the date in which you received the inventory. The adjustment account will be the Clearing Shipping Expense Account you created in the previous step. The next step would be to select the inventory item that needs to be adjusted, widgets in our example. Then add the Total Value plus the Shipping Cost as the new value. This will make the average cost of the inventory equal to the original cost of the inventory plus the cost of the shipping.

Note that this method works with QuickBooks Pro and Premier because these versions use an average cost inventory valuation method. If you are using FIFO (first in first out) inventory valuation methods then this will not work because we are changing the valuation of the entire inventory account for that product and not just the last items that were ordered.


Inventory Adjustment Menu

Inventory Adjustment Menu


If you followed the steps correctly, your new inventory valuation would be $5.50 (in the example above) and the balance in the clearing shipping expense account will be $0.

Another alternative that would work with all inventory valuation methods would be to enter the invoice for the widgets and allocate the cost of the inbound shipping to the item costs (increasing the item cost so that it is the original cost owed to the supplier plus a portion of the shipping costs). Then in the expense tab you would enter a negative number for the amount of the shipping that you just allocated to the individual items on the item tab and the expense account you will use is the expense clearing account. Then you would record the third party shipping invoice to the same expense clearing account to zero out the account.

Following these directions will capitalize your shipping costs making your gross margin more accurate and in line with what is actually happening in your operations.

If you have any questions please feel free to leave a comment below.

Thank you for your time and subscribe to this blog to receive notifications for new posts I will be releasing.

How to enter your own invoice number in QuickBooks Online – QBO Tutorial

The following instructions are for setting up your QuickBooks Online Company file to allow you to enter you own invoice numbers. I also recorded a brief video showing how to change the company settings step by step.

  1. Click on the Company Gear Icon in the upper right hand corner.
  2. Click “Company Setting” under Setting
  3. Select “Sales Form Entry” on the left hand side of the screen
  4. Check the box that is labeled “Custom transaction number”
  5. Click “Save” to save your settings.

Now your QuickBooks Online company file will be set up to allow you to enter your own invoice number.  If you have any questions or comments please feel free to enter them below. Also make sure to subscribe to my Blog for more tips and useful information I will be publishing soon.

Thank you for reading and have a wonderful day!

How to Handle a returned Check in QuickBooks Online

This is a brief instructional post on how to record bounced checks in QuickBooks Online. This method can also be applied to Desktop versions of QuickBooks.  Embedded below is also the video version of these instructions including a run through of the entire sales cycle.

  1. Create a product or service in your item list called “returned check”, the income account is going to be the bank account that the check bounced from. This item is going to be used in creating a new invoice for the bounced funds.
  2. If you are going to want to invoice for Returned Check charges by the bank,  you are going to want to create another item in your product/service list called NSF Fees. You can use an existing income account or create a new income account if you want to track NSF fees invoiced to customers.
  3. Create a new invoice to the customer whose check bounced. The first item on the invoice is going to be the item created in Step 1 and you want to enter a description of the returned check and the amount of the returned check.
  4. The second item on the invoice is going to be the item created in Step 2. Enter the amount you are going to be charging as an NSF fee.
  5. Now your invoice total should add up to the amount of the bounced check plus the amount charged for the NSF Fees.  Save and send the new invoice to the customer.

The result will be the deduction of the bounced check from the bank account and a new invoice in accounts receivable for the amount still owed in addition to the new charge for NSF fees.  This is the proper way to handle bounced checks in QuickBooks Online.

As always please feel free to comment and ask questions. Subscribe to my blog and YouTube channel for more informative posts in the near future. Thank you.

How to account for customer deposits using QuickBooks Online – QuickBooks Online Tutorial

This is a quick blog post describing how to account for customer deposits in QuickBooks. I have also made a YouTube video showing step by step instructions, followed by a example of accepting a customer deposit and later on invoicing that same customer.

Instructions for accepting a customer deposit

  1. Set up a new “Other Current Liabilities” account in your company file’s chart of accounts called “Customer Deposits.”
  2. Create a new product/service item in your item list called “Customer Deposit,” the income account associated with this item will be the Other current liability account we created in step 1.
  3. Accept a deposit from the customer or client using the Sales Receipt option under your customer center.
  4. Continue to filling out the sales receipt as usual and when choosing an item, choose the Customer Deposit item and input the amount of the deposit.

As always, if you have any questions or need any assistance please feel free to contact us at 954-358-9487 or fill the contact form below to have us contact you. I hope you have a wonderful day!

Microsoft Excel for Business – Payroll Modeling

Microsoft Excel is an extremely powerful tool that every business owner should have in his arsenal. Excel spreadsheets can be used in a number of different ways, some of which include;

  • Creating company budgets and cash flow forecasts
  • Keeping track of inventory
  • Basic business bookkeeping
  • Expense and Payroll Modeling

This list can go on almost indefinitely, but I will stop it right there for now. Looking over this with just a few examples of how you can use Excel in your business, it is easy to see how this software can be a great asset in formulating your business plan.

Please check out the video I made below showing how I used Microsoft Excel to create a payroll model for a specific business that pays the greater of an hourly rate or base commissions. I will be making more videos on other uses for Excel and business tips in general so please subscribe.

If you have any questions or comments please feel free to post them below or e-mail me at [email protected]. I hope you have a great day!

Why is Bookkeeping Essential to Your Business?

January 27, 2013

Accurate bookkeeping is essential to every business.  Below are some examples of bookkeeping benefits, by establishing proper bookkeeping practices:

  • You will be able to maintain and grow your business where others have failed. There are many benefits to having accurate books for your business, and the goal of this post is to go over some of these benefits.
  •  You will be able to provide information regarding the financial affairs of a business.
    Bookkeeping Help

    Bookkeeping Help

    These financial affairs are represented in the form of various reports, the most commonly used reports are the Profit & Loss (income statement), Balance Sheet and the statement of cash flows. These reports provide a wealth of information ranging from the profitability of a company to its net worth.

  • Once your company’s financial reports are available on a routine basis, you will be able to take this information and analyze it by comparing your current progress to previous periods and other businesses in your industry.  Comparing the current profit and loss statement with that of the previous period will provide you with the information needed to spot areas and trends that need attention.
  • Whether your company needs to increase sales (prices, quantity etc.) or lower expenses, these financial reports are your key to problem solving and prioritizing internal issues. Eventually these records will allow you the opportunity to construct the best strategy for your business, which is truly priceless.
  • Keeping accurate books will also help when the time comes to file taxes. By having the proper reports to give to your tax preparer, you will save time, money and the stress of having to go through receipts and bank statements with the hopes of coming up with accurate figures for your tax return. Being prepared for tax time with reports that have been reviewed on a routine basis helps to ensure that there will be no unwanted surprises.
  • Inadequate bookkeeping will also inevitably result in the oversight of revenue coming in, or expenses going out which can lead to disastrous consequences.  In the fast paced business world of today, it is all too common to forget about a transaction that could have a big impact on your financial records. Reconciling your accounts and reviewing your financials habitually will decrease the chances of this occurring.

Unfortunately, a common mistake that businesses make is to short change their accounting/bookkeeping budget. This mistake is very costly because improper or inadequate bookkeeping will often result in more expenses down the line in the form of the agonizing, time consuming repair process of your company’s financial records. When it comes to bookkeeping, just like many things in life, it is a best practice to do things right the first time around. Please feel free to contact us if you need support or have any questions regarding your company’s bookkeeping.

Written by Ofir Gabay