If you create too many categories in your chart of account, you can make your entire financial reports difficult to read and analyze. Be careful not to overly complicate your chart of accounts. By doing so, you can easily understand what products or services are generating the most revenue in your business. You should ask yourself, what do I want to track in my business and how do I want to organize this information? For example, we often suggest our clients break down their sales by revenue stream rather than just lumping all sales in a Revenue category. While the chart of accounts can be similar across businesses in similar industries, you should create a chart of accounts that is unique to your individual business. Think about the chart of accounts as the foundation of a building, in the chart of accounts you decide how your transactions are categorized and reported in your financial statements. What is the Chart of Accounts?Īs we discussed in our article: Bookkeeping Services for Small Business, the chart of accounts is a listing of all accounts tracked by your business in your accounting software general ledger. In this ultimate guide, not only do we explore examples of a common chart of accounts but also we discuss best practices on how to properly set up your chart of accounts. What most entrepreneurs don’t realize is that the chart of accounts represents the foundation of your accounting process, if you don’t set up the chart of accounts correctly, your bookkeeping and financial records will have major negative impacts. The Chart of Accounts is one of those unknown parts of your accounting software we don’t even think about.
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