Establish a Chart of Accounts

An account chart is a list of accounts used by your company that are usually grouped by type, and bookkeeping programs include a number of work items to keep together at the same time, making it easy to charge accurately and consistently. You can prepare accurate financial statements and keep accurate spending records to prepare future budgets, including production and overhead budgets.

An example of a chart of accounts we used in the real estate industry was recommended by the National Association of Home Builders which can be found on the NAHB website.

When I took charge of the SCUBA store the former manager who knew a lot about SCUBA diving but rarely about the business was recording costs on the accounts set up in QuickBooks. He had very little idea about the difference between income and expenditure. He assumed that the account would be spent on the basis of name only, regardless of whether it was income or expenditure or even assets or liabilities.

Financial statements are of no value when it comes to paying taxes. We had to go back and fix almost every transaction before we started accounting at the end of the year. We also noticed that there are multiple accounts with the same name. There was an asset account called SCUBA Equipment and an expense account of the same name. We change assets account ‘1280 – Rental equipment ‘And cost calculation ‘3680 – Product sales cost – SCUBA equipment.‘We have assigned four-digit numbers to all accounts. Asset accounts all start with the same number and all expenses start with the same number. We also trained with those who had access to the accounting system.

Proper accounting and accounting will make it easier to plan your overhead budget and ensure that you are at least charging enough to cover your expenses. A good chart of accounts will make it easy to keep your accounting accurate and consistent. In future articles we will talk about cost accounting as a way to control and accurately predict your costs.

The National Home Builders chart for the account can be found at http://www.nahb.org/generic.aspx?genericContentID=29577

Copyright 2010 Thomas Robinson of the original content

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