What is the Chart of Accounts?

by Lynnea Bylund on January 30, 2018 · 4 comments

As small business owners we all have different needs. The bookkeeping systems we select may vary, the specific reports that we access to make crucial business decisions may vary, even the frequency of our accounting may be vary.  But at the foundation of it all is what we call a Chart Of Accounts.  And your chart of accounts is specific to your business’ needs and, set up correctly, it often will be different from that of other companies.

Setting Up QuickBooks Chart of AccountsSo What is the Chart of Accounts?

Our business dictionary defines the chart of accounts as a “System of accounting records developed by an organization to be compatible with its particular financial structure, and in agreement with the amount of detail required in its financial statements.”

Click here to see a sample Chart of Accounts

What this means is that the chart of accounts is specific to your company’s needs and structure. It is the basis of how income and expenses are tracked and reported. It can be tracked in great detail or just as a high level summary. It just depends on how you wish to view your reports.

How to Create Your Chart of Accounts

Source: Holly Neitzel | Outright.com

When it comes to small business, I like to keep a fairly simple chart of accounts. I find it easiest to start with the accounts listed on the Schedule C IRS form. While I don’t condone doing your bookkeeping for the sole purpose of completing your taxes (as opposed to doing them for internal business purposes, with the benefit of making filing taxes easier), the Schedule C is a great starting point.

So, looking at the Schedule C, we see the following accounts:

Income

Returns

Cost of Goods Sold

Advertising

Car & Truck Expenses

Commissions & Fees

Contract Labor

Depletion

Depreciation

Employee Benefit Programs

Insurance

Interest: Mortgage

Interest: Other

Legal & Professional Services

Office Expense

Pension & Profit-sharing plans

Rent or Lease: Vehicles, Machinery & Equipment

Rent or Lease: Other business Property

Repairs & Maintenance

Supplies

Taxes & Licenses

Travel, Meals & Entertainment: Travel

Travel, Meals & Entertainment: Deductible meals & entertainment

Utilities

Wages

Other Expenses

Some of these you will use, some of them you won’t. Just leave out the ones you know you won’t use. For example, as an accounting business with next to no equipment, I leave out the ‘Rent or Lease’ accounts. I don’t have any of that, so I don’t want those extra accounts cluttering up my chart of accounts.

On the flip side, you may want even more detail than is offered in this base list. You may want to split out Supplies in to Shop Supplies, Shipping Supplies and Office Supplies. Or, you may need to split your advertising in to Online Advertising and Local Advertising. You just need to think about what detail you want to review on your Profit & Loss report and set your chart of accounts accordingly.

There really is no right or wrong when it comes to setting up the Chart of Accounts for your business. And, it isn’t set in stone once you do set it up. Play around with it, make changes as necessary. Over time you will create a fine tuned Chart of Accounts that works perfectly for your growing business!

Click here to see a sample Chart of Accounts

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{ 3 comments }

1 sartaj August 8, 2011 at 1:44 pm

Hi,
i am an accountant in a restaurant and want to use quick book software, and here i request you that kindly tell me the sample of chart of account for a restaurant.
i shall be thankful for you time and cooperation.

Regards – Mr. Sartaj

2 Catalyst QuickBooks Editor August 9, 2011 at 1:36 am

Hello Mr. Sartaj – I don’t have a ‘sample’ to provide, without some research. Where is the restaurant located?

3 Monique4Bonnie October 30, 2011 at 1:21 pm

please i need to understand how to post in opening balances for a vendor am owing in my previous accounting year into quickbooks. i just started using it. thank you

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