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COGS

What General Ledger Account Types Does QuickBooks Support?

Chief Mechanic · September 7, 2010 ·

QuickBooks supports 16 total general ledger account types in its Chart of Accounts.  Each account is assigned a single account type, which can be changed, subject to certain restrictions.

5 Income/Expense Account Types for the Profit & Loss (P & L) Statement

  • Income
  • Expense
  • Cost of Goods Sold
  • Other Income
  • Other Expense

11 Asset/Liability/Equity Account Types for the Balance Sheet

  • Fixed Asset
  • Bank
  • Loan
  • Credit Card
  • Equity
  • Accounts Receivable
  • Other Current Asset
  • Other Asset
  • Accounts Payable
  • Other Current Liability
  • Long Term Liability
QuickBooks Premier 2009 GL Account Types

The Chart of Accounts can be accessed by one of several menu selections, Company->Chart of Accounts and Lists->Chart of Accounts, or by clicking Ctrl + A.

If account numbers are used, the numbers should follow certain broad account types.  See our article on assigning general ledger account numbers based on the account type.

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Should I Use Account Numbers In My General Ledger?

Chief Mechanic · September 7, 2010 ·

We think you should use account numbers in your general ledger, but we think it’s more important that you’re consistent in either using them correctly or not using them at all.

To use account numbers, you need to enable that preference by visiting the Edit->Preferences menu and clicking on the Company Preferences tab of the Accounting submenu, which is shown below.

QuickBooks Premier 2009 Preferences Use Account Numbers

Once the account number preference is enabled, you’ll be able to manually assign account numbers to your general ledger accounts.  QuickBooks won’t automatically assign them for you or insure that your numbers follow a consistent structure.  It will insert the account number before the account name, and you’ll then be able to quickly locate accounts by typing the first few characters of an account name or the first few digits of the account number.

When assigning account numbers, use numbers that:

  • have a consistent length
  • have multiple unused integers between numbers to accommodate changes to your general ledger
  • follow a consistent structure

New businesses or companies installing QuickBooks for the first time are more likely to make changes to their general ledgers, so it’s especially important for these firms to have the flexibility to add or change account numbers.

In older versions of QuickBooks, account numbers were a way to re-arrange the order of accounts rather than having an account list in alphabetical order based on the account description.  Since you can now drag accounts in your chart of accounts list to rearrange the order, account numbers no longer serve that purpose.  Account numbers are primarily a tool to organize account numbers outside of QuickBooks, such as in Excel, and to improve the readabilty of your account list.

Intuit recommends the following ranges for assigning account numbers:

10000 to 19999 Assets
20000 to 29999 Liabilities
30000 to 39999 Equity or Capital
40000 to 49999 Income or Revenue
50000 to 59999 Cost of Goods Sold, Job Costs, or Project Costs
60000 to 69999 Expenses or Overhead Costs
70000 to 79999 Other Income
80000 to 89999 Other Expenses

QuickBooks organizes accounts on reports based on the account type, not the account number.  Whether you follow this structure or another one of your own choosing is up to you.  Just keep in mind that account numbers are another tool to help organize information.  If you use account numbers but don’t use them in a way that results in a better organized chart of accounts, you’re actually worse off.

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Letting Inventory Levels Go Negative Results In Unreliable Numbers

Chief Mechanic · September 19, 2008 ·

A common problem for many inventory-based businesses is recording receipt of inventory before that inventory is billed to a customer. In retail settings, pressure to promptly take care of customers can lead to pressure to produce an invoice that hasn’t yet been received. Since producing an invoice is often a necessary first step to getting paid, many firms prioritize invoicing over properly receiving inventory. When invoicing results in inventory levels going negative, the results are inaccurate financial reports.

To see how, let’s start with the sample data included with QuickBooks for a products-based business, Castle Rock Construction. First, let’s review the firm’s Balance Sheet and Profit & Loss before we make any transactions. We start with a total inventory value of $30,121.33. Our starting cost of goods sold is $3,610.50. Castle Rock has incurred costs of $10,211.23 for customer Kathy Abercrombie, the customer we plan to invoice. Next, let’s add a new inventory item called “COGS Test” with an opening balance of 5 units costing $5 each. QuickBooks debits inventory for $25 and automatically posts an offsetting credit of $25 to Opening Balance Equity; both entries are marked as reconciled. Our opening balances before creating the new inventory item are shown below.

Negative Inventory Impact Initial Sale
For a simple example of the impact of letting an inventory level go negative, let’s sell all 10 units of our “COGS Test” item to Kathy Abercrombie. Since we only have 5 units of that item on hand, that will reduce our quantity on hand for this inventory item to -5. When we attempt to save the invoice, QuickBooks will warn us that we’re attempting to sell inventory that we don’t have, but we’ll ignore this warning. That’s where our trouble will begin.

At the time of the sale, QuickBooks had information on the average cost to that point in time. That cost was $5.00. But what if our cost for the item had changed and was now something other than $5.00? We can imagine that if we had to scramble to get this item for the Abercrombie order, we faced higher costs. Let’s enter a bill for 20 units dated after the date of the Abercrombie invoice. The date is very important, as we’ll soon see. The 20 units we received cost $7.50 each, or 50% more than our normal cost. Here’s our Balance Sheet and Profit & Loss after entering the vendor receipt.

Negative Inventory Impact BS If Negative Inventory

Negative Inventory Impact P & L If Negative Inventory

By letting inventory reach negative levels, QuickBooks accounted for the transaction as if we sold 5 units that cost $5 each and 5 units that cost $7.50. In effect, even though QuickBooks uses the average cost method, this transaction was treated on a First In First Out (FIFO) basis.1 A look at the Transaction Journal for the bill confirms this. Once we entered the new inventory at higher cost, QuickBooks automatically applied the extra cost of $2.50 per unit to the 5 units that we did not have in stock. Our cost of goods sold is now $3,673.00, an increase of $62.50. Our total costs for customer Abercrombie are $10,261.23, and our inventory value is $30,233.83.

We obtain totally different results if we record the bill for receiving inventory before invoicing the customer. Our cost of goods sold in this case is $3,680.50, or $7.50 higher than reported by allowing inventory to reach negative levels. Our inventory value is $30,226.33, or $62.50 higher than reported when we recorded the invoice before the bill. Our costs for customer Abercrombie are now $70 higher than when we started.

Negative Inventory Impact BS If No Negative Inventory

Negative Inventory Impact P & L If No Negative Inventory

All of these differences are due to the fact that by entering an invoice before a bill, we prevented QuickBooks from correctly calculating the average cost for our new inventory item. After all, we can’t expect QuickBooks to calculate average cost before we’ve entered that cost. By first entering the bill for inventory receipt and then recording the invoice, we stick to our inventory cost assumption. We started with 5 units costing $5 each, and we added 20 units costing $7.50. That produced an average cost of $7 for each of our 20 units. The results reported by entering transactions in the proper sequence are consistent with that average cost.

AccountInvoice Before Bill ($)Invoice After Bill ($)Difference ($)
Cost of goods sold3,673.003,680.507.50
Customer costs10,261.2310,281.2320.00
Inventory valuation30,233.8330,226.337.50
Item average cost7.507.000.50

The bottom line: when customer invoices are entered before vendor bills, your financial reports will be inaccurate. In our example, overall cost of goods sold, customer costs, and inventory were under-reported. That resulted in overstating income. Our average cost for the new item was reported as $7.50, rather than the $7.00 obtained by applying the average cost method consistently. We built our example around a discussion of this problem in the QuickBooks knowledge base.

If you’ve already made the mistake of entering invoices before bills that have resulted in negative inventory levels, we can help get your financial reporting back on an accurate track.

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  1. In August 2008, the SEC announced that some companies can report under International Financial Reporting Standards (IFRS) by 2010 and that all companies will be required to do so by 2014. IFRS, unlike US GAAP, requires FIFO costing where individual items are not identifiable. [↩]

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