A company's accounting system depends on a structure of records that keep income, costs, and other information sorted out and prepared to place into a financial statement. This structure, called the chart of accounts, serves as a file of all the company's financial accounts.
Setting Up the Chart of Accounts
At the point when you start a new business, first, you set up your chart of accounts as an initial phase in building up your organization's accounting system. Small businesses don't all have a similar chart of records. The accounts you include relies upon the kind of business. For instance, in the event that you have a service business, you won't have an inventory account.
Assets
Cash - Includes the equalizations in all checking and bank accounts.
Accounts receivable - Includes all exchange receivables. It might be important to likewise have a "Different Receivables" represent different sorts of receivables, for example, advances to employees.
Inventory - Includes raw materials, work-in-process, and completed merchandise stock.
Fixed assets - It can be subdivided into various extra records, for example, machinery, equipment, land, buildings, and furniture.
Accumulated depreciation - One record is commonly used to assemble the collected depreciation for a wide range of fixed assets.
Liabilities
Accounts payable - Includes all trade payables due to providers.
Accrued expenses - Includes all accrued liabilities, such as wages and taxes.
Sales taxes are payable - Includes every single accumulated obligation, for example, compensation and expenses.
Notes payable - Includes the rest of the parity on all advances payable. For the following purposes, it might be simpler to make a different record for each advance payable.
Equity (assumes a corporation)
Common stock - Includes the original amount paid by shareholders for their stock.
Retained earnings - Includes all cash retained in the business from profits, which will not be distributed to shareholders.
Revenue
Service revenues - Includes all sales related to the provision of services to every customer.
Product revenues - Includes all sales of products to customers.
Repair revenues - Includes sales generated by repair work and the sale of spare parts to the customers.
Expenses
Cost of goods sold - This includes the material cost of items sold, and at a more sophisticated level, it also includes the cost of direct labor and allocated factory overhead.
Salaries and wages - Includes the cost of all salaries and wages not which is already included in the cost of goods sold.
Rent expense - Includes the cost of rent for building space, vehicles, equipment, and so forth.
Utility expense - Includes the cost of heat, electricity, broadband, phones, and so forth.
Travel and entertainment expense - Includes the cost of travel, meals, housing, and related expenses incurred during employees who travel on company business.
Advertising expenses - Includes advertising and other marketing expenses.
Depreciation expense - Includes the expense related to depreciation. This is a non-cash expense.
Non-Operating Revenues and Expenses
Interest income - Includes income on all invested funds.
Interest expense - includes interest paid and accrued on debts owed by the company to lenders.
Gain on sale of assets - Includes any gains on the sale of assets.
Loss on sale of assets - Includes any losses on the sale of assets.
In general, however, the preceding chart of accounts should be sufficient for a small company.
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