CHART OF ACCOUNTS - THE BONES OF YOUR FINANCIAL
Every bookkeeping transaction will be categorize to an account found in the Chart of Accounts. If using accounting software, it is not possible to enter a transaction into the system without putting it into an account. This creates a mapping for the transactions that evolve into the bookkeeping reports, Balance Sheet and Income Statement (P&L).
Not all Chart of Accounts have a number associated with each account name. Some accounting softwares do not have numbers. If you are able to use numbers, it can make it easier for reporting purposes. For example, following the infographic above, you want to see all the assets which are 1000s, you would sort by all 1000s numbers in the Chart of Accounts.
USING YOUR TAX FORM AS A GUIDE TO CREATING YOUR CHART
If you are unsure if you have all the proper accounts listed in your Chart of Accounts, use your income tax return for reference. For most small businesses, your return has Schedule C (Form 1040) Profit or Loss From Business.
Using the tax form as guidance will help your tax accountant when it is time for taxes. This might not give you all the detail you would like to track. For example, Taxes and Licenses can be real estate tax, personal property taxes on business assets, federal highway use tax, licenses and regulatory fees for your business to state or local governments.
If you have any questions, please do not hesitate to reach out to me. I would love to help!
Until next time, have a good one!