Categories Quick Guide

Your categories, also known as your Chart of Accounts are the backbone of your bookkeeping system. They organize every financial transaction so you can track business performance, prepare for taxes, and make informed decisions.

There are generally seven main account types:

Income

Cost of Good (Services) Sold

Expenses

Other Income & Expenses

Assets

Liabilities

Equity

These categories capture everything your business owns and owes, as well as all the money flowing in and out. Below, you’ll find a breakdown of each account type, how to use it, and examples of accounts you might include in your own bookkeeping.

Income Statement (Profit & Loss) Accounts

Income Accounts

What it is: Money your business earns from sales and other sources. Revenue is the business's total money from selling goods or services. It's the top line of the profit & loss statement and is sometimes referred to gross sales

How to use: Track all sources of business income to monitor growth and performance.

Examples:

  • Product Sales

  • Service Income

  • Subscription Revenue

  • Rental Income

  • Shipping Income

  • Discounts & Allowances

COST OF GOODS SOLD (COGS) Accounts

What it is: Cost of goods sold (COGS) is the direct cost of producing goods or services that a business sells

How to use: Track these costs separately to measure gross profit and see how much it costs to fulfill your offers.

Examples:

  • Purchases Expenses

  • Materials Expenses

  • Shipping Expenses

  • Sub-Contractors

  • Direct Labor

operating Expense Accounts

What they are: Operating expenses are the expenses a business incurs through its normal business operations.

How to use: Track all outgoing money to understand spending habits and manage profitability.

Examples:

  • Automobile Expenses

  • Advertising & Marketing

  • Bank Fees

  • Business License

  • Office Supplies

  • Payroll Expenses

  • Professional Services

  • Rent & Occupancy

  • Utilities

  • Taxes

  • Telephone & Communication

  • Travel & Meals

other income & expense Accounts

What it is: Money earned or spent that’s not tied to your core business activities.

How to use: Record these separately to keep your operational performance clear and avoid skewing your main profit numbers.

Examples:

  • Interest & Dividend Income

  • Amortization & Depreciation

  • Gain/Loss on Sales of Assets

Balance Sheet Accounts

ASSETS Accounts

What they are: Everything your business owns that has value.

How to use: Track cash, equipment, accounts receivable, and other resources that help run your business.

Examples:

  • Chequing Account

  • Savings Account

  • Accounts Receivable

  • Inventory

  • Fixed Assets; eg. Equipment, Furniture, Vehicles, Buildings

  • Prepaid Expenses

There are two types of assets:

Current Assets: Current assets are items of value owned by your business that you can convert into cash within one year. Like cash and accounts receivables.

Non-Current Assets: Non-current assets, also known as fixed or long-term assets, are not expected to be converted to cash or used up within one year.

LIABILITY Accounts

What they are: What your business owes to others.

How to use: Track loans, credit cards, and unpaid bills so you always know what you owe and when.

Examples:

  • Accounts Payable

  • Credit Card Payable

  • Loan Payable

  • Payroll Liabilities

  • Taxes Payable

There are two type of liabilities:

Current liabilities: Obligations expected to be settled within a year. Examples of current liabilities include accounts payable, short-term loans, and taxes owed.

Long-term liabilities: Obligations that are not expected to be settled within a year. Examples of long-term liabilities include long-term loans, bonds payable, and leases.

EQUITY Accounts

What it is: The net worth of your business known as equity represents the value remaining after all liabilities are subtracted from assets. It includes the initial funds invested by the owner(s) and any additional contributions made over time. If the business reinvests its net earnings instead of distributing them, those retained earnings are also reported under equity on the balance sheet.

How to use: Track all contributions made to the business, distributions taken out, and retained earnings. The exact accounts you’ll use depend on your business structure:

Examples:

  • Sole Proprietor: Owner’s Equity, Owner Contributions, Owner Draws

  • Partnerships: Partner's Equity, Partner's Contributions, Partner's Draws

  • Corporation: Common Stock, Shareholder Contributions, Shareholder Distributions, Retained Earnings, Dividends Paid.

💡 Quick Tip: Keep Your Bank Feed Clean

Regularly review and categorize transactions in your QBO bank feed to prevent transactions from piling up. This not only keeps your reports accurate but also makes month-end reviews faster and easier. Aim to check your feed at least once a week so your books always reflect real-time activity.


DISCLAIMER: While we strive to provide valuable guidance and support, individual results may vary and are dependent on factors such as individual effort and implementation. We are not liable for any outcomes resulting from the use of our services or products. Clients are responsible for their own actions and results.

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