How to Set Up a Chart of Accounts

One of the most important things to have when it comes to bookkeeping is a clear, cohesive Chart of Accounts. (FYI: We’ll lovingly refer to the Chart of Accounts as CoA in the rest of this post.)

Not only does it make categorizing your transactions much easier, it also allows you to run drilled-down reports and review data to see exactly where your money is coming and going from.

With that said, you might be wondering…

What is a Chart of Accounts, anyway?

Great question! A chart of accounts is like the categorized drawer system in your office—everything has its place. It’s a list of all the accounts you use to record your business transactions. From sales to expenses, assets to liabilities, it’s all in there!

Step 1: Know Your Business Type

Different businesses have different needs. Are you running a cafe, a high-tech photography business, or an online boutique? Your CoA will reflect the unique aspects of your business.

Step 2: Break Down the Basics

Here’s a simple structure most businesses can start with:

1. Assets: Things your business owns (cash, inventory, equipment).

2. Liabilities: Things your business owes (loans, accounts payable).

3. Equity: Your stake in the business (owner's equity, retained earnings).

4. Revenue: Money coming in (sales, service income).

5. Expenses: Money going out (rent, utilities, salaries).

Step 3: Customize, Customize, Customize

Here’s where it gets personal. Tailor your CoA to fit your business like a glove, with accounts that make sense and ensure everything you do has a place.

• Retail Business: You might need detailed inventory accounts (e.g., Clothing Inventory, Electronics Inventory).

• Service Business: Break down revenue by service type (e.g., Consulting Income, Maintenance Income).

• Manufacturing Business: Include accounts for raw materials and work-in-progress.

Step 4: Review and Revise

Your business evolves, and so should your CoA. Regularly review and tweak it to ensure it still serves your needs, and add or remove accounts as needed. Remember that your Chart of Accounts should be flexible and may change over time.

Step 5: Get Techy

Use accounting software like QuickBooks or Xero to manage your CoA effortlessly. These tools often come with templates that can be customized to your heart’s content, or can be set up fresh and modified easily to fit your business.

Before you go, one last tip: Don’t be scared to consult a pro.

When in doubt, give us a ring. We’re happy to help and answer any questions you may have - and no matter where your books are, we don’t judge.