The Chart of Accounts is the initial building block of any accounting system. No matter what kind of business you are a part of, there is always a key group of accounts that encompass all of the financial transactions that happen in a business.
Customization is the next step to building out a brilliant Chart of Accounts. From there, the Chart of Accounts will get tailored with three key players in mind: the owner, the CPA, and the bookkeeper.
In the words of SLC Bookkeeping's COO Alex Viau, the most important facet to keep in mind is to KISS... "Keep it simple, stupid."
The Accounts Every Business Needs
Regardless of what type of business you are in, there is a standard Chart of Accounts that applies to most every business, with a few exceptions. To see the account groups we use and how to code transactions to them, follow along in this QuickBooks Chart of Accounts Overview.
The goal is to be as short and clear as possible while having a set of accounts that will be able to encompass all of the common transactions that happen. A cluttered Chart of Accounts means navigating through information that has been spread thinly, versus numbers that would pack a real punch if they were consolidated.
Information Meaningful To The Owner
These three questions are the most telling questions we ask of potential new clients when we are trying to learn about them and what they need from their accounting system:
1. What is important to you as a business owner?
2. How do you make your money? And...
3. What are you worried about in your business?
Even if you, as the owner, don't know everything about finances and accounting, the Chart of Accounts should still speak to you and provide useful information. This could be anything from itemizing out expenses that the owner wants to keep an eye on, to customizing it to your specific industry. The most important goal being that the Chart of Accounts will display information in a way that is meaningful to the owner.
CPA Calls The Shots
When building out a Chart of Accounts, it is very important to consult with your CPA. Every CPA has their own style and customizing can be helpful and cost effective come year-end, when it's time to file taxes.
Typically, the CPA isn't the one recording the day-to-day transactions, so their input will be directed toward a tax perspective and they will want to arrange the accounts in a way that makes the most sense for whatever tax strategy they are pursuing; this is where the bookkeeper comes in.
Bookkeeper Pulls It All Together
The bookkeeper's role is not only to record and properly deal with the transactions happening in the business on a daily basis, but to also bridge the gap between the CPA and the owner. From here, the bookkeeper will try to make sense of the CPA's input from a tax standpoint and translate that into the Chart of Accounts.
Oftentimes, it's the bookkeeper who will take the information gathered from both the owner and the CPA to build the Chart of Accounts out to meet each party's requirements and create a system that will work best for the business.
Lastly Keep it Simple, Stupid
Cut out the fluff. The best Chart of Accounts is a short one. Having a long Chart of Accounts could mean that there are unused accounts that are making noise in your financials, or that you are wasting time trying to find the right account to book things to. This, as you can imagine, could get in the way of seeing the forest for the trees when analyzing financial statements. To get the most meaningful information from your books, keep it short and sweet to critique your business on the facts, while not getting lost in the woods.
Need help customizing your Chart of Accounts?