Setting up your Chart of Accounts

Maintaining an organized Chart of Accounts is key to better bookkeeping. When you have an organized chart of accounts you will be able to enter and categorize your transactions quickly and easily and be able to run reports such as a profit and loss at anytime to gain the insight you need into the financial health of your business.

The Set-Up

The Chart of Accounts will consist of Assets, Liabilities, Income, Expenses, and Equity.

Assets- what the business owns (bank accounts, equipment, inventory)

Liabilities- what the business owes (credit card balance, loans, and outstanding bills)

Income- the money the business makes from providing goods or services and other income the business makes (sales, interest earned, credit card rewards)

Expenses- the money the business spends in running operations (office supplies, utilities, software, bank fees, cost of goods sold)

Equity- the money the owner puts in or takes out of the business (Owner’s Investment, Owner’s Personal Expenses)

Categorizing Transactions

Each of your transactions will fall under a category above. You will create accounts under each of the above categories for the different transactions your business has. For example, your internet bill would have an account labeled Internet under the Expense Category. Make sure you are categorizing the transactions that same way every time so your reporting will be accurate. You don’t want internet expense to fall under internet one month and software the next month. You can be as detailed as you’d like when creating the accounts. From the internet example above, you could just have one utilities account for internet, telephone, and electricity if you don’t have a need to break out each individually. If you maintain organization, you can set up the chart of accounts in the way that fits your business and reporting needs best.

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