As a business owner, an essential part of successfully running that business is to keep accurately maintained and up to date records. This is vital to the financial health of your business. We know that accounting might not be your area of expertise, nor is it an easy thing to keep up with, but it’s a necessity. Accounting errors can carry hefty price tags, so it’s best to catch them early, or even better, avoid them altogether.
A good starting point for establishing a healthy accounting system is to set up a well-organized Chart of Accounts.
What is a Chart of Accounts?
A Chart of Accounts (COA) is a list of all your transactions within your accounting system. Each transaction is assigned to an account as well as subaccounts. The purpose of the COA is to give you an overall view of your company’s spending and income in one centralized location. With this information, you’re able to report and manage critical financial information about your organization quickly. Doing so will aid you in making better decisions and maintaining accuracy.
What information’s included and how is it set up?
The COA depends on your business type and industry, so it’s classifications vary depending on your company type and size as well as the accounting platform you’re using. When it comes to organizing things, you want to keep it clean and simple as not to increase the possibility of errors. The order of items in your chart should be based on the order that they appear on your balance sheet and income statement. Many companies will also separate this information by department (e.g., sales, marketing, technology). Below is a general overview of what accounts and categories are typically included.
Based on the information you provide when setting up your accounting system, platforms like Xero and Quickbooks will automatically generate a standard COA for your industry. Each time a transaction is recorded in your system, it will be sorted into it’s assigned category and given a reference number. You can customize your COA by adding and removing accounts and subaccounts and modifying names to better suit your business. When making any changes to your COA, be sure to maintain the same accounts throughout the year to avoid negatively impacting your books. While adding accounts is not an issue, deleting any can cause future headaches. In addition to ensuring you have the correct categories for your business, you also want to be confident that things are in the proper order.
Your financial reports can only be as good as you make them, so be sure that the information that’s entered is going where it should be. Whether you’re not sure where to start, what to do next, or how to fix things, we’re here. Contact us to learn more about how we can take your small business accounting to the next level.