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Creating a Chart of Accounts

Wednesday, September 16, 2015

Creating the Chart of Accounts
Starting bookkeeping for the first time can be an intimidating experience, if you don’t know where to start. Most bookkeeping programs offer some sort of template to start a chart of accounts. If you find yourself having to create a new chart of accounts or have been left with the daunting task of creating a new account in an existing Chart of Accounts, here are some guidelines to assist you.

First things first, what is the Chart of Accounts?
The Chart of accounts is a list of accounts used to organize and record financial information in a company’s bookkeeping. The Chart of accounts is the back bone of all financial statements. Financial Statements are created based on the basic types of accounts. Assets, Liabilities and Equity accounts are used to create the Balance Sheet. Revenue and Expenses are used to create the Income Statement, also known as the Profit & Loss Statement.

Should I use Account Numbers?
Yes, account numbers are used to help identify and organize the different types of accounts.

  • 1000 - 1999 : Assets
  • 2000 - 2999 : Liabilities
  • 3000 - 3999: Equity
  • 4000 - 4999 : Revenue
  • 5000 - 5999 Expenses

How do I know what basic type of an account to create?

  1. Assets – items owned by the company in forms of cash, receivables, investments or property and equipment. 
  2. Liabilities - money owed by the company in forms of loans, or items in which you have to pay back (accounts payable)
  3. Equity – difference between what you own and owe.
  4. Income/ Revenue – payments received from Customers for goods or service provided. – Money coming in 
  5. Expenses –payments made to vendors or supplies for goods or services purchased. – Money going out
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