Whether you’re using QuickBooks Online (QBO) or Xero, or some other accounting application, when first setting up your books you’ll need to establish a Chart of Accounts, or COA. Usually accounting apps come with a predefined Chart of Accounts, which you can then customize to fit your needs. Below is a general list of the types of accounts you need to have on your COA.
- Cost of Goods Sold
- Other Income
- Other Expense (typically depreciation and interest expense)
(The first three types make up the Balance Sheet, and types 4 through 8 make up the Income Statement.)
If you wish, in both QBO and Xero you can assign account numbers to the accounts on your COA. These typically begin with the same numbers from the list above, and can be two, three, four, five, or more digits in length. (Because I’m a numbers person, I like to use account numbers. After I work with a COA for awhile, I start remembering the account numbers. When I’m posting a transaction to a specific account, I just have to type in the account number to find it. Yes, I’m weird that way.)