Chart of Accounts Limitation QuickBooks

Did you know there is aChart of Accounts Limitation in QuickBooks? Does this limitation gotcha down???

When you create a company, QuickBooks Online creates specific accounts for that company by default, and creates other special accounts when certain features are turned on in the settings. Now we have a 250 cap on the number of accounts in the chart of accounts. There are approximately 10 accounts we cannot change/alter/remove. They are part of the core group of accounts that are rigid in QuickBooks Online. Some are tied to banking. Some are tied to features that you turn on or off.   If you max out, you will have to move to QuickBooks Online Advanced product.The following post will provide information about which accounts can and can’t be deleted, merged, or linked to specific options or functions, how to manage these accounts, and any account limitations you may encounter with them.

Accounts that cannot be deleted

These are default accounts are created automatically, and you cannot delete them or use them for any other purpose:

  • Undeposited Funds(note, sometimes this account is NOT created and you have to created):  The Undeposited Funds account is a default account in QuickBooks Online that holds funds from payments to your company until you deposit them to your bank account.You cannot delete this account as it is required to properly record payments before they are deposited.
  • Opening Balance Equity: This account is the default account for adjustments. You can only edit the name of this account, if necessary.  I recommend editing it to say Opening Balance Equity-DO NOT USE!  This account is used for your opening balance entry in the QuickBooks file.  This is your balance sheet entry.  It should BALANCE and zero out.  Clients are notorious for using it for other purposes.  Putting DO NOT USE stops that.
  • Retained Earnings: This account is the default account for reporting retained earnings on the Balance Sheet report. You can change the name of the Retained Earnings account if, for example, you are a non-profit that prefers to use another name for retained earnings, but in all other cases, the name should not be changed.  I have seen some unique uses of this account.  You can use it to funnel into another account to clear it out at year-end and track the amounts per year.
  • Inventory/Stock Assets and Cost of Goods Sold/Cost of Sales: If you try to edit or delete these accounts, any edits to Products/Services will recreate them.  It is frustrating!  I see Inventory Asset-1 accounts in almost all client files. You delete it, it reappears.
  • Reconcile/Reconciliation Discrepancies: This account is used to report when your transactions in QuickBooks Online don’t match the transactions reported on your bank statement, and this account cannot be deleted.  I do not recommend using this account EVER.  Find your error and reconcile it.
  • Unapplied Cash Payment Income:  This account is used to report cash basis income from customer payments that were received but not applied to a sales form.
  • Sales tax agency name, such as Florida Tax Payable: This account is created when you set up sales tax and reports the sales tax for every transaction. You cannot delete this account.

The following accounts can be edited, but cannot be deleted or merged:

  • Services: The Services income account is the default income account in QuickBooks Online. It operates the same as any other income account, but neither it nor the corresponding Product/Service item can be deleted, but you can edit the names of both to reflect your main income type.  For example, I use “Legal Services” or “Estate Planning Income”.  
  • Uncategorized Expense and Uncategorized Income: These accounts are created automatically when you see them attached in the bank feed for a vendor or customer, and record any expense or income transactions that can’t be matched to an account. You cannot delete these accounts.
  • Uncategorized Asset: This account records any asset that cannot be matched to an account, and cannot be deleted. Again, another account used in the bank feed download process.  I see a flurry of these throughout client files when they just download these from the bank feed.
  • Owner’s Equity: This account represents the cash or assets you have invested in the company and cannot be deleted.  But can be modified to match the entity type

 Editing the name of the an account:

  1. Select the Gear icon on the Toolbar.
  2. From the left menu, select Accounting and choose Chart of Accounts.
  3. Locate the Services account in the list.
  4. From the Action column drop-down menu, select Edit.
  5. In the Account dialog, update the Name to reflect your main income.
  6. Select Save and Close.

The Services account name now reflects your main income.

Accounts that can be deleted by merging

You can delete the following accounts by merging them into the Services income account:

  • Billable Expense Income
  • Markup

How to merge accounts:

  1. Select the Gear icon on the Toolbar.
  2. From the left menu, select Accounting and choose Chart of Accounts.
  3. Locate the account to be merged in the list.
  4. From the Action column drop-down menu, select Edit.
  5. In the Account dialog, change the name of the account to Services, or the name assigned to the Services income account.
  6. Select Save and Close.
  7. When prompted whether you want to merge the accounts, select Yes.

The accounts are merged and the original accounts can no longer be used.

Accounts linked to specific options: Shipping Income and Discounts Given

The following accounts are linked to specific turned on features or options on the Sales tab of gear> Account and Settings:

  • Shipping Income
  • Discounts Given

You must link another account with the Shipping or Discount option or turn off the option entirely before you can delete these accounts.

To change the account linked to the Shipping or Discount option:

  1. Select the Gear icon on the Toolbar.
  2. Under Your Company, select Account and Settings (or Company Settings).
  3. From the left menu, select Advanced.
  4. In the Chart of Accounts section, select the pencil (edit) icon to open the fields for editing.
  5. From the drop-down lists in the Shipping account or Discount account fields, select another account for the option.
  6. Select Save.
  7. Select Done.

Once the accounts are no longer linked to their associated options, you can delete them from the Chart of Accounts.

You can turn off the linked option and then delete the account:

  1. Select the Gear icon on the Toolbar.
  2. Under Your Company, select Account and Settings (or Company Settings).
  3. From the left menu, select Sales.
  4. In the Sales form content section, select the pencil (edit) icon to open the fields for editing.
  5. Clear the checkboxes of the options to turn off.
  6. Select Save.
  7. Select Done.

You can now delete the accounts in the Chart of Accounts.

If you turn these options on again in the future, the accounts are automatically recreated.

Automatically-created accounts: Shipping Income

The Supplies and Materials account is automatically created when you enter a product/service item. Do not delete this account if there are existing transactions that use the product/service items linked to it.

If you delete this account, it will be automatically recreated the next time you enter the same product or service item.

Accounts Receivable and Accounts Payable

The Accounts Receivable and Accounts Payable accounts track income and expenses:

  • Accounts Receivable: This account is created automatically when you create an invoice.
  • Accounts Payable: This account is created automatically when you enter a bill.

We recommend that you only have one Accounts Receivable and one Accounts Payable account as QuickBooks Online will only use one.

However, if you have to group or divide your open payables or receivables, you can do one of the following:

  • Set up parent and sub-customers to group your open receivables
  • Use location tracking to group payables or receivables

For more information, see​ Can I change the default Accounts Receivable or Accounts Payable account

Because QuickBooks Desktop allows the use of multiple Accounts Receivable and Accounts Payable accounts, when you convert a QuickBooks Desktop file to QuickBooks Online, we recommend that you merge all Accounts Receivable and Accounts Payable accounts in the Chart of Accounts into a single account each.  To see another post on cleaning up a client’s messy COA, go here.

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What is your recourse if you “tip the scale” and go over the 250?  Well, you have to have to upgrade to QB Advanced.  Yes, that comes with a hefty price tag of $150/mo.  Don’t say that I did not warn you.   But I expect great things to come for QB Advanced SKU.  Right now, it has custom users, Fathom for reporting, custom fields.  But as with everything in QBO land, it is ever evolving. So, stay tuned!

 If you have any questions or would like to see a future video on another topic, please reach out to me on Facebook.  

Note: excerpts of this article came from Intuit help articles in the community forum.

Lynda Artesani

Lynda Artesani is the president of Artesani Accounting. Her firm specializes in working exclusively with the legal industry. She is passionate about helping her attorney clients migrate to modern cloud-based systems and become future-ready.​ ​ She is a Top 100 ProAdvisor, an alumni member of the Intuit Advisory Board and a member of the Intuit Trainer Writer Network. She also runs a Facebook group and a private group called The Accountant's Law Lab. It is a place where members can learn how to work with attorneys and law firms. Lynda lives in Southwest Florida. She is a registered yoga teacher and in her free time, you will find practicing yoga or walking on the beach.​