November 30, 2018
Bookkeeping 101 – Chart of Accounts
A Chart of Accounts is a list of accounts and their relevant codes that a business uses in their general ledger. An account is a unique record for each type of asset, liability, equity, expense and revenue and is used by accounting software to create financial reports. The chart is sorted by account category so that each are listed together. It’s important to remember these three points when setting up your Chart of Accounts:
Account code relevance:
Make sure the account names suit your business. E.g. a café could have account codes such as ‘food purchases’ or ‘beverage purchases’ whereas a tradesperson could have ‘material – steel’ or ‘R&M – work ute’.
Account code tax type:
Ensure that you have the right tax code for the account type, particularly if you are registered for GST, e.g. ‘beverages’ would be GST on expenses, ‘food GST free’ would be GST free. It will be time consuming to amend tax codes at BAS time if they have been set up incorrectly.
Account code categories:
Double check that you have only account codes listed under their relevant account category. If account codes are put in randomly, then reports and financial statements will reflect incorrect data and figures.
Now might be the time to go over your Chart of Accounts and ensure it reflects the above mentioned.