Having this area of your bookkeeping organized and up to date means knowing where your company stands.
Kerby Accounting & Business Solutions helps businesses set up, clean up and better organize their QuickBooks accounts.
Within QuickBooks, organized businesses have what we accountants call a chart of accounts — account numbers and names in four main categories. We’re always happy to review a company’s chart of accounts or work with businesses who need to create this important framework from scratch.
No matter if your company is in the restaurant, construction, retail or home-services industry, having this area of your bookkeeping organized and up to date means knowing where your company stands. It serves as a basis for business decisions, essentially, projecting a company’s true, timely big-picture status.
A chart of accounts has four main categories: Asset accounts, liability accounts, income accounts and expense accounts. Each account gets its own line item.
· Asset accounts are where anything of value is listed. This may include land, a building, your inventory or business vehicles, for example. But wait, it’s not just the amount you paid for them — asset accounts include depreciation for these items — their decrease in value over time — and not chiefly what you paid for them. Liquid assets that are always changing, like checking accounts, are also included here.
· Liability accounts are where you have, well, liability. This section is for things like bank loans, payable income taxes, credit-card balances and bills. The principal is logged here, not the interest owed.
· Income accounts represent the ways your company generates income, or cash flow. Businesses get the most decision-making insight by having good, specific details here, with multiple categories going beyond “items sold.” One line item, for example, could be “income from widgets sold,” with another “income from mini-widgets sold,” and continuing from there.
· Expense accounts may not be as much fun to track as income, but it’s certainly necessary, unfortunately. This is where you list money you have spend on your business. This could be rent, shipping or materials. As with the other categories of the chart of accounts, the more specific you get, the better. Don’t be afraid to introduce subcategories to keep it all organized and relevant.
These are the basic four categories of a chart of accounts. A qualified accountant can assist you in deciding what other categories or subcategories are helpful, and why. Like cleaning out a closet, an organized and comprehensive chart of accounts, once complete, needs to be maintained and updated regularly. But it is a pleasure when it’s done.