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.
Try: Microsoft Small Business Accounting is good for small business owners who use Microsoft Office applications. QuickBooks is a favorite among software reviewers for meeting basic accounting with easy-to-use graphics. Peachtree by Sage is another good choice.

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.
Try: Newegg.com sells it for $69.99 (retails for $99.99).

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.
Try: QuickBooks Enterprise Solutions: Industry Editions are available for contractors, manufacturing and wholesale, nonprofit, professional services and retail. The specialized navigator gives you one-click access to tasks and features commonly used in your industry.

Get the freebie

If you're pinching pennies, try using the free software you can find on the Internet.
Try: Free Accounting Software offers 100 percent free software which you can download and use. It also includes a help section.

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.
Try: Check out the sample chart at LSWG, a Maryland-based accounting firm. 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.
Try: Outsource all your accounting needs to The Accounting Department, which can customize a chart of accounts and send all reports back via the Internet.

 

• 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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