1.10 – Let’s Set Up Your Chart of Accounts
Setting up your Chart of Accounts is a straightforward process. Use the provided lists as a starting point and tailor them to fit your business’s needs. If you can’t think of every type of account right away, don’t worry. You can easily add to the Chart of Accounts anytime. Just update the list and share it with any employees who need it.
Key Components of the Chart of Accounts
A typical Chart of Accounts includes at least three columns:
- Account: Names of the accounts
- Type: The type of account (Asset, Liability, Equity, Revenue, Cost of Goods Sold, or Expense)
- Description: Details about the type of transactions recorded in the account.
Account Numbering System
Many companies assign numbers to accounts for easier coding and organization. Here’s a common numbering system:
- Asset accounts: 1,000 to 1,999
- Liability accounts: 2,000 to 2,999
- Equity accounts: 3,000 to 3,999
- Revenue and Cost of Goods Sold accounts: 4,000 to 4,999
- Expense accounts: 5,000 to 6,999
This system aligns with most computerized accounting systems, making future automation easier. If using software, review the chart options included, remove any unnecessary accounts, and add new ones that suit your business.
Practical Tips for Manual Setup
When setting up your Chart of Accounts manually, leave space between account numbers to allow for future additions. For example, number your Cash in Checking account as 1,000 and Accounts Receivable as 1,100, leaving room to add other cash-related accounts.
Additional Sections for Better Understanding
Why a Well-Structured Chart of Accounts Matters
A well-structured Chart of Accounts provides a clear financial picture and aids in efficient financial management. It ensures accurate recording of transactions, simplifies reporting, and helps in making informed business decisions.
Business Regular Review and UpdatesFranchises
Periodically review your Chart of Accounts to ensure it still meets your business needs. As your business evolves, you might need to add or adjust accounts to better track new types of transactions or expenses.
Customizing for Your Business
Tailor the Chart of Accounts to reflect the unique aspects of your business. Whether you’re a retailer, service provider, or manufacturer, customize the accounts to provide the most useful financial insights for your specific operations.
By setting up a comprehensive and flexible Chart of Accounts, you’ll create a strong foundation for accurate bookkeeping and effective financial analysis.
