How to Understand QuickBooks Expense Accounts

You have to understand the concept of double-entry accounting to understand QuickBooks expense accounts. Each transaction that you enter into QuickBooks affects two different accounts, including an expense account. You also have to understand the types of expenses that you will be entering. QuickBooks has several different types of expense accounts that are automatically generated when you begin creating your company file. These are found in the Chart of Accounts.

Instructions

Expense Accounts and Double-Entry Accounting

1. Open the QuickBooks company file by clicking on the QuickBooks icon on your desktop. Enter the user ID and password that you chose when you installed the software. The "Home" screen opens. Click on the "Lists" option in the top menu.

2. Scroll down the "Lists" to the "Chart of Accounts" button and click it. The Chart of Accounts is organized with asset accounts at the top, including bank accounts, receivables and current assets. The middle of the list includes credit cards, liability accounts and equity accounts. The bottom of the list includes income accounts, cost of goods sold and expense accounts. Each transaction that you complete will affect two different accounts. The payment of an insurance bill, for example, will increase the "Insurance" expense account by the amount paid and will decrease the balance in the bank account by the same amount. This is called double-entry accounting and the proper execution of this method results in an accurate balance sheet.

3. Enter a practice transaction -- a sample payment of a utility bill -- to see how double entry-accounting works. Open the check register by clicking on the bank account that you created when installing the software. Enter "Utilities" on the account line, which is located below the payee line. Type in an amount that is easy to remember, such as $222.22, into the amount column and click the "Record" button.

4. Click on the "Reports" button, scroll to the "Company & Financial" section, then open the "Profit and Loss" report. Click the "Profit and Loss Standard" report. The "Utilities" expense account will have the $222.22 transaction recorded as a payment and the same amount will be in the bank transaction as a withdrawal.

Understanding Expense Sub-Accounts

1. Open the Chart of Accounts again and scroll through the different expense accounts that were automatically created by QuickBooks. You can delete any of the expense accounts that don't pertain to your business or add new ones. Note that some of the expense accounts have a parent account and some have sub-accounts below them that are indented.

2. Create a sub-account for an expense category. You have to understand sub-accounts for expenses to do this. The "Utilities" account can act as a parent and have sub-accounts for "Water," "Electric" or "Gas." These sub-accounts can help you keep track of any revenue increases or decreases in specific areas. Hold the "CTRL" and "N" keys down with the Chart of Accounts open. The "Add New Account" window will open.

3. Choose "Expense" as the type of account. Enter the word "Electricity" into the account name box. Click in the center of the box labeled "Make Sub-Account of." Click the arrow box and scroll down to locate the "Utilities" expense account, then click it.

   You can create a sub-account for any expense account that has multiple expenditures under the same general category. Other expenses that would work with sub-accounts include "Automobile," which could have sub-accounts such as "Insurance," "License and Fees" and "Fuel."

Tips & Warnings

• You can create reports to learn the status of each expense account if you have set up the expense accounts correctly.

References

• Intuit QuickBooks Support: Understanding QuickBooks Expense Accounts
• Intuit QuickBooks Support: Create Report for Specific Expense Account for Bill Payment Status