The Quicken and QuickBooks manuals and Help systems do a decent job of describing the basics of setting up Accounts/Categories. (Especially, see the QuickBooks industry-specific information for Farming and Ranching.) Below we identify some key considerations for setting up Accounts/Categories, and show examples to emphasize some important points.

1. Let Accounts/Categories represent broad categories of income and expense. The goal should be to keep your Accounts/Categories list simple. That will make it easier to (1) find Accounts/Categories during transaction entry, and (2) remember the purpose of each.

2. RESIST the temptation to include enterprise-related items in the list. Try to use Classes for that purpose instead. That will keep your Account/Category list simple and short, will also keep your reports simple, and will normally make report generation easier.

   Many Quicken and QuickBooks users include some enterprise-related Accounts/Categories as subitems of income accounts, like this:

   • Sales
   • Grains
   • Corn
   • Soybeans

Doing this is OK--and it does cause Corn and Soybeans Sales lines to appear on your Profit & Loss reports--but it's redundant if you're also using Classes named Corn and Soybeans.

Your Account/Category list will be even more complicated if you use enterprise-related expense subitems too. Here's a short example:

• Sales
• Grains
• Corn
• Soybeans
• Fertilizer
• Corn
• Soybeans
• Chemicals
• Corn
• Soybeans
• Storage & Warehousing
• Corn
• Soybeans

As you can see, the Account/Category list grows unwieldy when a few enterprise subitems are added...which is the whole reason for using Classes instead. Here's how the same list could look if used just two Classes, named Corn and Soybeans, to represent all enterprise information in transactions:

• Sales
• Grains
• Fertilizer
• Chemicals
• Storage & Warehousing

Even if you do include enterprise information in the Account list, ManagePLUS for QuickBooks™ can provide per-unit (per-acre, per-head, etc.) information for those enterprise-related Accounts. As it does for Classes, ManagePLUS lets you enter production quantities for Accounts, such as the number of acres of Corn produced, so that per-unit (i.e., per-acre) revenue and expense information can be provided on reports.

3. Let Accounts/Categories represent income and expense groupings that are meaningful to you, not to the IRS. Both Quicken and QuickBooks let you assign Accounts/Categories to specific tax lines. For example, if you have separate Herbicide and Insecticide Accounts, the QuickBooks tax report can include both of them in the total it calculates for the "Chemicals" line of form 1040 Schedule F.

   In other words, you can generate the reports you need at tax time almost without regard for how your Chart of Accounts or Categories list is set up. Making your list of Accounts/Categories match those on the particular tax form you file is unnecessary.

Essentially, these requirements mean you may distribute printed copies of  this article, so long as each copy clearly bears our copyright notice and no fee is ever charged for such copies.