and now we will see the results and consequences of choosing a specific company type when you
create your QuickBooks file choosing a company type determines what owner's equity accounts will
be put in the chart of accounts when QuickBooks automatically makes your chart of accounts for
you when you create the file it will determine what federal tax form your company will file
or at least be matched to in the QuickBooks file and you can change the company tax form in the my
company window anytime you need to the equity accounts that QuickBooks put in the chart of
accounts will not change but you can edit those accounts very easily yourself the way we learned
in previous videos when you first create your new company file in QuickBooks you soon come to this
window where it asks for your business name and of course when we choose industry in the videos
that I made choose other none so that QuickBooks does not put a chart of accounts for you and you
can put it yourself however when you choose a business type there are some accounts that
QuickBooks will put no matter what that's because different types of companies file different tax
forms and here are the choices so you can clearly see the reason why you choose a different company
type is because QuickBooks needs to know what tax form your company will file you can also choose
it from the pulldown menu and you see the company type and the tax form that gets filed with it are
both here then you would just choose one whichever one it is click create company then finish the
setup steps if you choose company type other none these two are the equity accounts that QuickBooks
will set up and the one called retained earnings is the one that we were talking about in the
previous video this is the account that shows the accumulated net income for prior periods of course
the other equity account is opening balance equity and I promise that every company type will have an
opening balance equity account put in the chart of accounts no matter what and I will clearly explain
what that is in the video that follows this one if you are choosing the sole proprietor of the
company then these are the equity accounts you would still get opening balance equity you would
get owner's draw and interestingly enough the account that they put called owner's equity that
one actually is the retained earnings account the one called owner's equity if you choose type sole
proprietor that's the one that will accumulate the income and expense for prior years you can
rename it if you want but the one that says owner's equity so I don't know if they want
you to combine the accumulated net income in the same account as the owners investment it might be
a good idea to create a separate owners investment account to separate it from what obviously is the
retained earnings account if you choose tight partnership you can see they give you a separate
retained earnings account clearly labeled notice there's still an opening balance equity account
here and they also give you partner one draws and partner one equity and partner two draws and
partner two equity that's for the investment and the withdrawal of each individual partner and of
course even though they give you an account clearly labeled retained earnings and this
account clearly is the account that I was talking about before that shows the difference between the
income and expense you would still have to do the procedures we learned about in the earlier videos
to distribute the income and you can rename these accounts or add accounts for additional partners
if you choose type corporation QuickBooks will put these as the owner's equity accounts in your
chart of accounts automatically now to fully understand the equity accounts in a corporation
you might want to study some basic accounting and read the chapter of corporate accounting basically
dividends paid is similar to owners withdrawals or owners drawers the way it was mentioned in
the partnership or the sole proprietorship and capital stock is similar to the owner's investment
account or the owners capital but again there are extra details that you might want to study
regarding the rules of accounting the only one we're interested now in is the retained
earnings account because even a corporation has a retained earnings account that will hold the
accumulated net income for prior periods even a tax-exempt organization that's not for profit has
a retained earnings account the earnings might not be distributed to the owners because there are no
owners but we still have an account in the chart of accounts and QuickBooks even if the company is
a not-for-profit organization the other part of your file affected by the choice of which company
type your company is is the tax mapping on the form this means you're telling QuickBooks the
line on the company tax form that the accounts and the chart of accounts will be copied to for
example your company's tax form is 1120 that means you told QuickBooks the type of company you have
is a corporation you can always check what type of company is in the my company window for example if
you click company my company you can see this is form 1120 corporation you chose corporation when
you created this file now there's a line somewhere on the 1120 form for utilities expense and we
want to make the account in our chart of accounts called electric and gas expense expense mapped to
that same line for utilities expense in the 1120 tax form and if we change forms the mapping will
be lost so how do we do this well we go to list chart of accounts and we find the account that
we want to map to a specific line in the tax form for our company we click account edit and in the
Edit account window where it says tax line mapping we click here and we scroll down and look at every
line on the 1120 form somewhere down here here it is other deductions utilities that means that the
balance of this account is going to be transferred to that line on the 1120 form when our accountant
imports the QuickBooks file into the tax software and that's how you map it now remember if you
change forms the mapping will be lost so let's change the tax form to 1065 partnership just to
make the point how do you change the company tax form from the company main menu choose my company
then choose pencil then choose report information so again it's company my company click the pencil
and choose report information right now it's 1120 now look what happens when we try to change it
to 1065 we get this warning income tax settings now invalid and will be deleted in all accounts
should we continue let's click yes just to see and click OK now when we go back to the chart of
accounts and we edit the electric and gas expense we say tax line mapping is now again unassigned