Rent and utilities live in two separate parent accounts within the chart of accounts: Rent Expense (account 6500-6700 in most QBO templates) and Utilities Expense (typically right next to it). They're related but distinct, and combining them makes month-over-month analysis harder than it needs to be.
Rent Expense captures every dollar paid for the right to occupy space. Office rent, warehouse rent, storage units, coworking memberships, equipment leases. It doesn't include utilities, even when the lease structures them as "additional rent" (more on CAM charges below). Rent expense is one of the most predictable lines on the P&L. Monthly amount stays flat for the term of the lease, with periodic step-ups built in.
Utilities Expense covers the recurring services that make the space usable: electricity, gas, water, sewer, trash, and (usually) internet and phone. The amounts fluctuate seasonally. Summer electric bills run 30-40% higher than winter bills in most regions. The line doesn't behave like rent. Keeping the two accounts separate makes the seasonal pattern visible.
Three reasons. Reporting clarity: rent is a fixed obligation. Utilities are variable operating costs. Lease analysis: when a client considers a move, comparing total rent across spaces is the first calculation. Having it commingled with utilities forces extra work. Budgeting: utility budgets need separate forecasting (they vary by season and headcount), and that's hard to do when the line is mixed.
Rent has more sub-types than most bookkeepers realize.
Standard commercial office lease: monthly base rent, sometimes with CAM (covered below), occasionally with prorations for partial months. Categorize the full base-rent payment to Rent Expense. If the lease specifies different components (base rent + CAM + parking), categorize the full monthly payment to Rent Expense unless the client wants the breakdown. Most don't.
A typical example: a Dallas service business pays $4,800 a month for 1,200 square feet of Class B office space. The $4,800 hits Rent Expense on the first of every month. If the lease has a 3% annual escalator, the rent increases to $4,944 in year two. Same account, just a higher number.
Warehouse, storage unit, and self-storage rentals all go to Rent Expense. Some bookkeepers create a sub-account (Rent: Warehouse, Rent: Office) once the business has both, but a single Rent Expense parent works fine for sub-50-employee companies. The IRS doesn't care about the breakdown. It's purely a reporting choice.
This is the gray-zone call. WeWork, Industrious, Regus, Common Desk monthly memberships could go to Rent Expense (because you're renting workspace) or Office Expenses (because you're paying for a service bundle). The defensible answer: long-term commitments with assigned space go to Rent. Flexible day-pass or hot-desk setups can defend Office Expenses. Pick one and apply consistently. See Office supplies vs office expenses for the broader Office Expenses scope.
Equipment rentals (copiers, printers, postage meters, leased vehicles) usually justify their own sub-account: Rent: Equipment. Operating leases hit Rent: Equipment as straight expense. Capital leases (now called finance leases under ASC 842) get capitalized as a Right-of-Use Asset with a corresponding lease liability. Different bookkeeping entirely. For most small-business equipment leases under $500/month, operating-lease treatment is correct: monthly payment hits Rent: Equipment, no balance sheet entries.
This is the section where every bookkeeper has at least one client doing it wrong.
For sole proprietors and single-member LLCs taxed as disregarded entities, home office expenses are claimed on Form 8829 attached to Schedule C at the personal level. Not as a business expense in the COA. The owner tracks home-related costs (rent or mortgage interest, property tax, utilities, insurance, repairs, depreciation) outside QBO. Then the tax preparer applies the business-use percentage on Form 8829 at year-end.
This means: don't create a "Home Office" account in the COA. Don't try to expense a percentage of personal rent through the business books. The deduction lives at the tax-return level, not the bookkeeping level.
S-corp owners can't claim Form 8829 (it's a personal-level deduction unavailable to corporations). The clean alternative: an accountable reimbursement plan under §1.62-2. The S-corp formally adopts a written plan, the owner submits monthly expense reports for the business-use portion of home utilities, internet, and a reasonable rent equivalent, and the corporation reimburses the owner. The reimbursement hits Office Expenses or Utilities Expense in the COA (depending on what's being reimbursed) and is tax-free to the owner.
Without an accountable plan, S-corp owners can't deduct home office costs at all. The IRS denies it as an itemized deduction post-TCJA. The plan is the only mechanism that works for S-corps.
The temptation is real: "Just create a Home Office sub-account and dump everything there." Don't. Two reasons. Audit risk: a "Home Office" line on a corporate P&L invites scrutiny because home offices and corporations don't mix cleanly. Allocation difficulty: home office is a percentage of mixed-use costs, and QBO doesn't natively split a transaction across personal and business. The right answer: home office costs stay in the owner's personal records (sole prop) or get reimbursed via accountable plan (S-corp), and the COA stays clean of home office accounts.
CAM is the part of commercial leasing that confuses every bookkeeper the first time.
CAM stands for Common Area Maintenance. In a multi-tenant commercial building, CAM charges are the tenant's pro-rata share of building-wide costs: lobby cleaning, landscaping, snow removal, parking lot maintenance, common-area utilities, building management fees, and sometimes property tax and insurance. The lease specifies what's included.
A typical commercial lease structure: base rent of $24/sf annually, plus CAM charges of $7/sf annually, billed monthly along with base rent. A 2,000-square-foot tenant pays $4,000 base rent and $1,167 CAM per month, totaling $5,167.
The clean answer: CAM goes to Rent Expense, alongside base rent. The lease defines CAM as an obligation of the tenant to the landlord. Functionally, it's part of what you pay to occupy the space. Splitting CAM into Utilities or Maintenance creates artificial line items that don't match how the obligation actually exists.
The exception: some bookkeepers split CAM into a sub-account (Rent: Base, Rent: CAM) when CAM exceeds 25% of total occupancy cost or when the lease has CAM reconciliation provisions that produce true-up payments at year-end. The reconciliation is the reason. A year-end CAM true-up of $4,200 hitting "Rent" without context confuses everyone in February.
Triple-net (NNN) leases pass through more than CAM. NNN = base rent + CAM + property tax + property insurance. Tenant pays one monthly amount covering all four. Default: full NNN payment hits Rent Expense. Components are tracked in the lease abstract, not the COA.
This is the line everyone gets wrong on the first commercial lease they handle.
A refundable security deposit is not an expense. It's a deposit. Money the landlord holds and returns at lease end (minus damages). The correct categorization: Other Assets (or specifically, an asset account named "Security Deposits" — number 1500-1600 range). The deposit sits on the balance sheet for the duration of the lease.
Concrete example: a client signs a 36-month office lease with $9,800 security deposit. The deposit payment: debit Security Deposits (Asset) $9,800, credit Operating Cash $9,800. The deposit stays on the balance sheet through the lease term. At lease end, the landlord returns $9,200 (deducting $600 for repairs): debit Operating Cash $9,200, debit Repairs Expense $600, credit Security Deposits $9,800.
Some leases require first month, last month, and security deposit upfront. The last-month rent is not refundable. It's prepayment of the final month's rent. Categorize the last-month portion to Prepaid Rent (a current asset), and reclassify it to Rent Expense in the final month of the lease. The security deposit portion still goes to Security Deposits as above.
The matching principle: an expense is a cost incurred to generate revenue in the current period. A security deposit doesn't fund any current-period activity. It's collateral. Treating it as expense overstates current-period costs and understates total assets. Both of which distort the financial statements. For accrual books, the asset treatment is required. For cash-basis books, the same treatment is best practice even if not strictly required.
Less drama than rent, but a few placement rules worth getting right.
The core utilities (electricity, natural gas, water, sewer) all go to Utilities Expense. Single account, no sub-accounts needed for most small businesses. Bills typically arrive monthly, occasionally bimonthly for water and sewer.
This is the gray-zone call inside Utilities. Internet service can go to Utilities Expense (because it's a recurring service to the property) or to Office Expenses (because it's a service to the operation, not the property). The defensible answers split about 60/40 in favor of Utilities. Pick one. Apply consistently. The IRS doesn't care.
Trash, recycling, and dumpster service go to Utilities Expense. Hazardous-waste disposal (medical, e-waste) may need its own line if material. Usually not.
Set up two parent accounts: Rent Expense (type: Expense, detail: Rent or Lease of Buildings) and Utilities Expense (type: Expense, detail: Utilities). Don't combine them. The separation is worth the two-second extra setup.
For multi-location businesses, class tracking is cleaner than sub-accounts. Set up classes for each location. Tag every rent and utility transaction with its class. The P&L by class shows location-level performance without doubling the COA size. Sub-accounts (Rent: Dallas Office, Rent: Austin Warehouse) work too, but they get unwieldy past three locations.
QBO recurring transactions automate monthly rent entries. Set up the recurring entry once when the lease starts. QBO auto-creates the bill or check on the first of each month. The transaction posts to Rent Expense automatically, and the bookkeeper just has to confirm and pay. For 12-month leases with no escalators, this saves about 20 minutes a month across a typical client portfolio.
A client signs a new lease, pays $8,400 security deposit. Bookkeeper books it to Rent Expense. February P&L shows $8,400 of "rent" that wasn't actually rent. Gross margin distorts, and the balance sheet is missing $8,400 of assets. Fix: deposits go to Security Deposits (asset account), not expense.
A sole-proprietor client wants to expense 20% of personal rent through the business books. Bookkeeper creates a "Home Office" account and journals 20% of monthly home rent into it. The business takes a deduction it can't actually claim, the personal Form 8829 isn't filed, and the IRS denies the deduction during a future audit. Fix: home office is a personal-return computation for sole props, an accountable plan for S-corps. It doesn't belong in the COA either way.
Bookkeeper sees CAM on the lease, sees that CAM includes some utility-like costs (lobby lighting, common-area HVAC), and books CAM to Utilities. Now the Rent line is artificially low and the Utilities line is artificially high. Anyone reviewing the P&L for occupancy-cost benchmarking gets confused. Fix: CAM goes to Rent Expense. The fact that CAM funds some utility-like costs at the building level doesn't change where the tenant categorizes the payment. See Expense account categories for the full operating-expense framework.
Growthy is bookkeeping software, not a CPA firm. This content is educational, not professional advice. Full disclaimer.
Related: Chart of Accounts: The Complete Guide for Bookkeepers, Office Supplies vs Office Expenses, Expense Account Categories
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Vehicle expenses split into two methods: standard mileage (a single per-mile rate that covers gas, depreciation, and maintenance) or actual expense (every cost tracked separately). The choice in year one usually locks in the rest.
Travel covers airfare, hotels, rental cars, and ground transit while away from your tax home for business. Meals belong in Meals (50% deductible). Mileage belongs in Vehicle Expense. The commute is never deductible at all.
Training and education go to Training & Education Expense, but the deductibility test is sharper than most articles admit. Owner career-change tuition isn't deductible; CPE for licensed pros always is; conferences split across three accounts.