Creating a Chart of Accounts

The right chart helps track the financial activity of your business

Every business needs an accounting system that creates reports to help you manage your business. Creating a chart of accounts is one of the most important aspects of that system. A chart of accounts is a listing of all accounts in a ledger, each with a reference code. Three things to know:

1. Corporations typically have these five categories in their charts of accounts: assets, liabilities, net assets, revenue (income), and expenses.
2. Although very small businesses may only need three digits to number their accounts, it's better to have more digits to allow for future growth and to follow any specific industry standards.
3. Your chart should reflect all the various transactions of your business with as much detail as possible. Add accounts where needed. It will be more difficult later to go back and add details.

Use software that guides you step-by-step

Three widely used software accounting packages have templates for charts of accounts that are a great way to get started.

Start with the basics

If you're starting out and want a simple, affordable system, try QuickBooks Simple Start 2006. Creating a chart of accounts is a snap with this entry-level system.

Buy industry-specific software

If you are in manufacturing, retail, construction or nonprofit, there's accounting software that will help you track the right information. Customizing a chart of accounts using industry-specific software can save time and headaches later.

Get the freebie

If you're pinching pennies, try using the free software you can find on the Internet.

Study samples for ideas

Analyze other companies' charts of accounts to create you own. Ask professional organizations in your field to show you what other businesses your size use.
Department of Health and Human Services also has sample charts in PDF files.

Go to the experts

If you need unconventional solutions to your accounting needs, you may need more than the popular software solutions. Get online help from certified public accountants.

• There's a trade-off between simplicity versus being able to generate historical comparisons. Fewer accounts make your chart simple. However, a category such as "miscellaneous" that is later categorized in more detail doesn't give historical context.
• Check tax requirements as certain accounts must be included, such as travel, entertaining, and advertising.
• It's easier to use a standard list of accounts that comes with accounting software, and then delete the accounts you don't need and add new ones.

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