Whether you are setting up a new business in QuickBooks or evaluating profitability for an established organization, setting up Expense Accounts in QuickBooks Online (QBO) with the right Category and Detail Type will provide you with the information needed to make sound business decisions. In this article, we’ll discuss how Categories and Detail Type are helpful, how to properly set them up, and how to automate them with Bank Rules.
Categories are the different types of accounts you can set up in QBO. Examples include bank, income, expenses, asset, equity, other expense, long-term liabilities, other income, credit card, cost of goods sold, etc.
Detail Types are specific to the Category chosen. Examples include bank (checking, savings, cash on hand), income (service, sales, discounts), and expenses (advertising, auto, legal & professional fees). There are several Detail Types to choose from in each main category and for expenses, there are over 25 detail types to choose from.
Why are Categories and Detail Types necessary?
QuickBooks Categories and Detail Types will provide:
- Detailed information that you and your CPA will use for reports and forecasting.
- Detailed information about where you are spending money.
- Comparison information about revenue streams and year-to-year performance.
- Detailed information on your overhead expenses.
- The ability to set up a realistic budget.
How do you set up QuickBooks Expense Detail Types?
First, identify all of your necessary business accounts: bank, income or revenue, expenses, assets, loan accounts, etc. Set up Categories for each type of account. Tip: Download the free worksheet below will help you with this process!
After you have identified your Categories, you will need to identify subcategories, or Detail Types, for each Category. Detail Types determine where the expense will appear on your financial reports. For example, if you have “Expense” as a Category, your subcategories, could be “Car Payments”, “Insurance”, “Gas”, etc. Detail Types should be customized and specific to your business and the terminology that you use. Avoid using general categories like “Other Income” or “Miscellaneous Expense” as much as possible.
Now that you have identified Categories and Detail Types, you are ready to set them up in QuickBooks:
- Click the Gear Icon.
- Click Chart of Accounts.
- Click New in the top right corner and fill out the screen.
DOES EACH BANK ITEM HAVE TO MATCH A QUICKBOOKS CATEGORY?
Yes, each transaction should be matched to a category. But, good news! You can automate the matching process by setting up Bank Rules in QBO. Bank Rules scan your bank items and automatically assign them to the predetermined Category you have set up.
To Create a Rule:
- On the left menu, select Banking.
- Select Bank Rules.
- Select New Rule.
- Fill in all the fields on the screen.
- Select Save.
STILL NOT SURE YOUR QUICKBOOKS DATA IS SET UP PROPERLY?
If you think your books might need help, they probably do! Don’t hesitate to reach out and connect with me. As a QuickBooks ProAdvisor, I’d be happy to help train your team, review your data and/or work with you to customize a package for the type of help you need after a Number Nerd Review.