Content How to set up your chart of accounts Operating Expense Accounts Save time with financial software that makes staying organized easy SAP Business One Chart of accounts best practices Related Financial Terms Glossary If not set up properly, subsequent financial statements will be rife with errors and misinformation. This is followed by the income statement, which includes https://www.bookstime.com/ revenue and expense accounts. This can be further divided into operating expenses, operating revenues, nonoperating expenses and nonoperating revenues. Those that start with two, three, four, and five represent liability, equity, revenue, and expense transactions, respectively. When recording transactions in the charts https://www.bookstime.com/articles/chart-of-accounts of accounts, you assign reference or account numbers to entries. The number tells you which account a transaction belongs to based on the number’s first digit. How to set up your chart of accounts Kashoo then creates the appropriate chart of accounts during the setup process. Managing your chart of accounts is much easier when using accounting software. Whether you’re a one-person operation or have a staff of 10, here are some good choices to simplify chart of accounts management for your business. A chart of accounts is arranged with a numbering system to help keep the recordkeeping process more organized. Below, we’ll delve into the different types of accounts and how to number them. Below, we’ll discuss why a chart of accounts is so important for your small business; how to make a chart of accounts, and some common account types. These main accounts help organize transactions into coherent groups that you can use to analyze your business’s financial position. In fact, some of the most important financial reports — the balance sheet and income statement — are generated based on data from the chart of accounts’ main accounts. All the account types are either part of income statements or balance sheets. In this instance, the current liabilities listed in Crumbs Bakery’s chart of accounts belong to the balance sheet statement. Operating Expense Accounts The Chart of Accounts is one of those unknown parts of your accounting software we don’t even think about. In this ultimate guide, not only do we explore examples of a common chart of accounts but also we discuss best practices on how to properly set up your chart of accounts. You can think of this like a rolodex of accounts that the bookkeeper and the accounting software can use to record transactions, make reports, and prepare financial statements throughout the year. You’ll notice that each account in the chart of accounts for Doris Orthodontics also has a five-digit reference number preceding it. They are prepared at the end of a specific period—typically monthly. You’ll want to consider a business expense tracker to record and manage your expense accounts. A chart of accounts allows you to run important reports such as your balance sheet and profit and loss (P&L) statement. Expense accounts are all of the money and resources you spend in the process of generating revenues, i.e. utilities, wages and rent. They are prepared at the end of a specific period—typically monthly. Over time, this will allow you to maximize profitability by gaining insights into your product cost and sales. When it comes to your primary accounts, there are a small collection of accounts that everything in your business will fit into. Let’s start with the first step, deciding which accounts to include. And if it’s your first time building one, towards the end of this guide, we’ve got multiple chart of account examples you can take with you and use as a template for creating your own. This content is presented “as is,” and is not intended to provide tax, legal or financial advice. Save time with financial software that makes staying organized easy Accounting software frequently includes sample charts of accounts for various types of businesses. It is expected that a company will expand and/or modify these sample charts of accounts so that the specific needs of the company are met. Once a business is up and running and transactions are routinely being recorded, the company may add more accounts or delete accounts that are never used. Note that each account is assigned a three-digit number followed by the account name.