Besides the IRS and (possibly, depending on where you live) the state and locality wanting to know your bottom line for tax purposes, you, as the business owner, want to understand and interpret the data about your business' finances. The chart of accounts is the foundation of your financial reporting, and you want it to reflect your business and the issues that are important to you.
With that in mind, we also need to keep the chart of accounts congruent with the needs of various users outside of the business owner. As mentioned earlier, your tax professional needs to be able to transfer data to your tax returns efficiently. Your CPA needs to be able to run ratios, create adjusting entries that work with the accounting equation, and evaluate performance for strategy or advisement. Banks or other lenders may want to see financials to look for key indicators about your ability to earn and responsibly spend revenue.
For these reasons, your Chart of Accounts should follow a general structure, but also allow for the insights that you need managerially. Typically, a chart of accounts begins with assets, moves into liabilities, then equity accounts and then revenue & expenses. At the very end, we make room for other extraordinary revenues and expenses.
The quickbooks online generic chart of accounts works this way, and displays accounts in the above order as sections and within those sections, accounts are laid out alphabetically. You can add additional structure by using subaccounts, &/or numbering your accounts, this way they don't fill in strictly alphabetically, but can be grouped in ways that help you evaluate data the way in which you need. You can further drill down to data that you need beyond this by using classes, & or locations.
For a basic introduction to the Quickbooks Online Chart of accounts, visit this link. For more detailed help with your chart of accounts and how we can allow it to cover your managerial needs while remaining user friendly for other users, give us a call to schedule an appointment! We'll take a look at your existing COA or discuss how to implement one if you're just getting started!
