Creating a chart of accounts is the first step to getting your accounting in order. As an entrepreneur, you are most likely dealing with all aspects of your business and have no time to focus on charting your finances. This post will provide you with information on how to create a chart of accounts for small businesses that want their books organized but don’t know where to start!
First off what is a chart of accounts?
It is a chart that lists all the accounts you need to keep track of your finances. Most businesses will want to start with these four – assets, liabilities, equity, and income.
The chart should be simple at first so make it reflect how many transactions are happening in your business right now. As you grow you can add things like the cost of goods sold and equity into the mix.
What accounts do you need to include?
Assets You should include:
1010 – Checking
1020 – Savings
1030 – Investment Account
1040 – Inventory
1050 – Accounts Receivable
1060 – Equipment
Liabilities You should include:
2010 – Accounts Payable
2020 – Credit Line
2030 – Lease Liability
2040 – Income Tax Payable
2050 – Business Loan
Equity You should include:
3000 – Retained Earnings
3010 – Owner Contributions
Income You Should Include:
4000 Sales from Services
4010 Rental Income
Expenses You should include:
6000 – Advertising Expense
6010 – Software Expense
6020 – Office Supplies
6030 – Rent
How do you use your Chart of Accounts?
A chart of accounts is an accounting tool that small business owners use to track their cash flow and the organization’s financials. It can help you be more aware of your finances as a company owner, how much money you have coming in each month, where it comes from, what expenses are needed for running the company, how successful or unsuccessful.
It’s fundamental that you have a chart of accounts that accurately reflects the goings-on of your business.
If any of this seems overwhelming to you don’t stress you’re not in the minority. Many business owners aren’t fans of bookkeeping especially when it gets into the details like developing their chart of accounts out.
If you want help with going over your chart of accounts or your bookkeeping overall I’d be happy to walk you through it!
Get started with a call here.