In certain situations, QuickBooks creates a default account called "Uncategorized income". The concern about having "Uncategorized income" in your Chart of Accounts is that it, like "Misc. Income", can become a catch-all for all unusual income. When transactions appear in "Uncategorized income", the accuracy of your reporting is diluted.

In the Chart of Accounts below, QuickBooks created an account called "Uncategorized income".

The account was created in the process of setting up a new customer. When you enter new-customer opening balances, QuickBooks creates an invoice that applies the amount of the opening balance to "Uncategorized income."

My recommendation to prevent customer balances from appearing as "Uncategorized income" is not to enter new-customer opening balances in the new customer setup. Rather, create an "Other Charge" invoice item in the "Items" list.

Procedure:

1) Pull down the "Lists" menu by clicking on "Lists" on the menu bar.

2) Click on "Item List ".

3) The "Item List" will open.

4) Click on the "Item" button on the bottom left of the window.

5) Click on "New".

6) The "New Item" window will open.

7) Click on the downward-pointing arrow in the "Type" field and select "Other Charge".

8) In the "Item Name/Number" field, type in "OB" for "Opening Balance".

9) Type "Opening Balance" in the "Description" field.

10) Click on the downward-pointing arrow in the "Account" field and select the equity account called "Opening Bal Equity." Click "OK".

Then, an invoice should be made for each customer who has an open balance before the current fiscal year. If you are creating a new QuickBooks file, an invoice should be made for each customer who has an open balance at the date your new QuickBooks file is created.

12) To create a new invoice, click on the "Invoice" icon on the icon bar.

13) Click on the downward-pointing arrow in the "Customer/Job" field and select the customer name from the Customer list. Or, you can type it directly into the "Customer/Job" field.

14) In the "DATE" field, enter the date the original invoice was created, so that you can track the aging. If the original date is not available, enter the day before your QuickBooks start date. You may also want to enter the original invoice number.

15) Type "OB" In the "ITEM" column and the words "Opening balance" will appear
in the "DESCRIPTION" column.

16) Tab to the "AMOUNT" column and enter the amount of the customer balance.

17) Click "Save & Close ".

18) The customer’s balance will appear in the account "Opening Bal Equity" instead of "Uncategorized income".

19) After you have created an invoice for each customer with an open balance as explained above, review any other transactions you may have in your "Uncategorized income" account. Reapply these transactions to the correct account, as you would for the "Misc. Income" account. Refer to page 27 for the procedure to review and reapply "Misc. Income" transactions.

20) After you have emptied the transactions from the "Uncategorized income" account, delete it from your Chart of Accounts. Refer to page 12 for the procedure to delete accounts.

When customer opening balances or "unusual" transactions are lumped into the "Uncategorized income" account, it becomes an easy catch-all account. However, it dilutes the accuracy of your reporting. By reapplying "Uncategorized income" transactions to the correct account and then deleting the "Uncategorized income" account, you get a better reflection of your business income.