Chart of Accounts
The Chart of Accounts is a listing of all accounts recording business transactions and accounting entries. Each account is assigned a reference number. All accounts are assigned to one of 5 broad categories (Assets, Liabilities, Equity, Revenue, and Expenses).Account Numbering
Most accounting systems assign a block of numbers to each of the 5 broad categories. Each account in each of the broad categories are assigned a number from their respective block of numbers. Most small businesses use 4 digit reference numbers. When the Chart of Accounts is initially created, gaps are left in the numbering sequence to allow more accounts to be inserted as your business changes while maintaining the logical order.
Government, universities, and large complex businesses may have thousands of accounts and require longer account reference numbers. Some industries, like restaurants, motel chains, and home builders, have developed a set of predefined accounts and reference numbers. If you want to be able to compare your business to the rest of your industry, you should use either the industry predefined chart of accounts, or one that closely resembles what is used by your industry.
- 1000 - 1999 Asset accounts
- 2000 - 2999 Liability accounts
- 3000 - 3999 Equity accounts
- 4000 - 4999 Revenue (income) accounts
- 5000 - 5999 Cost of Goods sold (job costs)
- 6000 - 6999 Expense (overhead costs) accounts
- 7000 - 7999 Other revenue (income not related to creating products)
- 8000 - 8999 Other expenses (expenses not related to creating products)
The amount of detail in your Chart of Accounts should be determined by a number of factors. The minimum amount of detail should allow you to meet the necessary government and financial reporting requirements. For example, in the U.S., businesses are required to report several expenses (advertising, travel, entertainment, etc.) as separate expenses. It makes sense to have separate accounts for each of these expenses. An advantage of having an initial level of more detailed accounts is that future comparisons are easier to perform, and provide more meaningful results.
For example, lets assume you sell five different software products and different licenses and prices, and you have just one account for total sales. Over the course of a couple of years, you've changed some of your product prices, you've changed your advertising methods, and you've also noticed a downward trend in total sales. If you had only one account, 'total sales', you would not be able to determine from the total sales numbers which products are the leading cause of the decline. If you grouped advertising for all products in one account, you would not be able to determine if advertising for different products is cost effective. Your advertising program may be cost-effective for two of the products, and a total waste of money for the other three.
If you have too many accounts, it can make your bookkeeping more difficult and time consuming than it needs to be. Your business could have one account for 'Postage Stamps on Hand', or separate accounts for each stamp denomination. In the end, you have to decide the level of detail you want and need to make effective business decisions without wasting your time.Defining Accounts
Different types of businesses will need different accounts within the main account groups. A retail store would have accounts for different types of merchandise. A manufacturer would have different accounts for the materials needed to create their products. A retail store would include an account for cash in the registers, and multiple vendors. The legal structure of the business (sole proprietorship, partnership, or corporation) require different accounts. For example, a corporation would have accounts for retained earnings and dispersed dividends. Your business may have multiple bank accounts because you decided to switch to a new bank. A generic Chart of Accounts will always need to be customized for your business. Over time, it will also need to be revised as business relationships change.
The following list can be used to develop your Chart of Accounts for your business. Some of the accounts will not be useful to you. Some of the accounts will need to be expanded for your specific needs.
|Assets||Cost of Goods Sold|
|Cash on Hand||5010 Material||1000 Petty Cash||5020 Freight & Transportation||1010 Cash in Registers||5030 Labor Costs||1020 General Checking Account||5040 Purchase Returns||1030 Payroll Checking Account||5050 Outside Services||1040 Savings Account||5060 Rental Expenses||1050 Money Market Account||5070 Repairs & Maintenance||1060 Certificates of Deposit||5080 Research & Development||1070 Accounts Receivable||5090 Small Tools|
|1210 Product #1||Expenses for Business Operations||1220 Product #2||Payroll Expense||1230 Product #3||6000 Wages & Salaries||Prepaid Expenses||6010 Commissions|
|1510 Insurance||6020 Consulting Fees||1520 Rent||6030 Federal Income Tax||1530 Freight (UPS, USPS)||6040 Social Security||1540 Postage on Hand||6050 Medicare||1550 Estimated Federal Income Taxes||6060 State Income Tax||1560 Estimated State Income Taxes||6070 Local Payroll Tax||1570 Estimated Local Income Taxes||6080 FICA - Employers Share|
|Fixed Assets||6090 Medicare - Employers Share||1810 Land||6100 Federal Unemployment Tax||1820 Building||6110 State Unemployment Tax||1830 Equipment (Computers, Printers)||6120 Health Insurance||1840 Furniture & Fixtures||6130 401-K Deductions||1850 Vehicles||6140 Employee Benefits||1860 Building Depreciation||6150 IRS Penalties||1870 Equipment Depreciation||Occupancy Expenses||1880 Furniture & Fixture Depreciation||6200 Depreciation||1890 Vehicle Depreciation||6210 Electricity|
|Other Assets||6220 Heat||1900 Employee Advances||6230 Insurance||1910 Security Deposits||6240 Internet|
|6250 Janitorial Supplies|
|Liabilities||6260 Rent or Lease|
|Current Liabilities||6270 Rubbish Removal||2000 Credit Card - MasterCard||6280 Telephone||2010 Credit Card - Visa||6290 Water & Sewer||2020 Customer Credits(Unredeemed Gift Certificates)||Office Expenses||2030 Commissions Payable||6400 Accounting Fees||2040 State Sales/Use Tax Payable||6410 Bad Debt Expenses||2050 Value Added Tax Payable||6420 Bank Charges|
|Wages and Salaries||6430 Books & Manuals||2200 Accrued Wages||6440 Credit Card Processing Fees||2210 Commissions||6450 Delivery Costs||2220 Consulting||6460 Donations||2230 Federal Income Tax||6470 Education||2240 Social Security||6480 Legal Fees||2250 Medicare||6490 Licenses||2260 State Income Tax||6500 Loss on NSF Checks||2270 Local Payroll Taxes||6510 Magazine Subscriptions||2280 FICA - Employer's Share||6520 Office Supplies||2290 Medicare - Employer's Share||6530 Postage||2300 Federal Unemployment Tax||6540 Professional Dues||2310 State Unemployment Tax||6550 Software||2320 Health Insurance Payable||6560 Training||2330 401-K Deductions Payable||Marketing Expenses||2340 Employee Benefits Payable||6700 Advertising - Internet|
|Long Term Liabilities||6710 Advertising - Print||2900 Property Mortgage||6720 Promotional Items||2910 Business Loans||6730 Trade Shows||2920 Vehicle Loans||6740 Web Hosting|
|Equity - Sole Proprietor||6810 Gas||3000 Capital||6820 Insurance||3100 Drawing||6830 Repairs|
|Equity - Partnership||6840 Rentals||3000 Capital - Partner 1||Travel & Entertainment||3010 Capital - Partner 2||6900 Entertainment||3100 Drawing - Partner 1||6910 Food - Staff Meetings||3110 Drawing - Partner 2||6920 Lodging|
|Equity - Corporation||6930 Meals - Business||3000 Common Stock||6940 Parking Fees||3100 Paid In Capital in Excess of Stock||6950 Travel||3200 Dividends||3300 Retained Earnings||Other Revenue||7000 Bank Interest|
|Revenue from Sale of Products & Services||7010 C.D. Interest||4010 Product #1||7020 Mutual Fund Dividends||4020 Product #2||7030 Stock Dividends||4030 Product #3||4500 Consulting||Other Expenses||4510 Commissions||8000 Interest Expense||4520 Royalties||8010 Sale of Assets|