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

In the Chart of Accounts below, QuickBooks created a default account called "Uncategorized Expenses."

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

If you are working on accrual-based accounting, my recommendation to prevent vendor balances from appearing as "Uncategorized Expenses" is not to enter new-vendor opening balances in the new-vendor setup.

A bill should be made for each vendor who has an open balance before the current fiscal year. If you are creating a new QuickBooks file, a bill should be made for each vendor who has an open balance at the date your new QuickBooks file is created. The vendor opening balance should be applied to the account "Opening Bal Equity" in the "Account" column on the bill.

Procedure:

1) To create a new bill, click on the "Bill" icon on the icon bar.

2) Click on the downward-pointing arrow in the "Vendor" field and select the vendor name from the Vendor list, or you can type the vendor name directly into the "Vendor" field.

3) In the "Date" field enter the date of the original vendor bill and its due date in order to track its aging. If the original bill date is not available, enter the day before your QuickBooks start date. You may also want to enter the original bill reference number.

4) Tab to the "Amount Due" field and enter the amount of the vendor balance.

5) Click on the downward-pointing arrow in the "Account" column and select the account "Opening Bal Equity" from the Account list, or you can type "Op" directly into the "Account" column and QuickFill will bring up the account "Opening Bal Equity". Click "OK".

6) The vendor’s balance will appear in the account "Opening Bal Equity" instead of the account "Uncategorized Expenses".

7) After you have created a bill for each vendor with an open balance as explained above, review any other transactions you may have in your "Uncategorized Expenses" account. Reapply these transactions to the correct account, as you would for "Miscellaneous" expenses. Refer to page 29 for the procedure to review and reapply expense transactions.

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

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