Chart of Accounts - An assosication structure
The chart of accounts should have a straightforward and logical organizational structure. More so than that last sentence. I personally prefer to use five digit numbers for primary accounts and 3 digit numbers for sub accounts.
Chart of Accounts - An assosication structure
There are many concerns to address when arrival up with a chart of accounts. Short and long terms considerations have to be taken into perspective. Many accountants would disagree with me whole-heartedly but this is the one time in accounting that you should avoid being conservative. I like to originate a chart of accounts that can weather the storm of business to come. Dream about where you want your business to be, take into scope international possibilities and make your accounting buildings flexible so you can fast adapt to business events.
When developing a chart of accounts think the business type, industry, business function, suitable industry practices, the needs of managers, the possibility of inter-company transactions and the flexibility of your structure.
The amount buildings should look something like the following
00000 - Short-term assets
10000 - Long-term assets/Intangible Assets
19000 - Depreciation and Amortization
20000 - Current Liabilities
30000 - Liabilities
(I like to have short-term notes and long terms notes correspond to a similar the digit prolongation 25860 - Short Term Note Payable 35860 - Long Term Note Payable and even the A/R and A/P are on separate sides of the accounting equation I line them up as well. It is a part of a good logical buildings and aid in memorization of accounts).
40000 - Equity
50000 - Income
60000 - Operating Expenses
70000 - administrative Expenses
80000 - Taxes/Interest/Extraordinary Income(Expense)
If you genuinely want to spend time developing a chart of accounts you can try to best align intimately connected earnings and expenses. Keeping in mind that if payroll expense for plant workers is 60100 that 70100 should be wages expense for sales and administrative employees.
Now to specifically address some of the considerations above. Will start with business type. This is prominent for inescapable reasons. business revolving colse to assistance are obviously going to differ from those revolving colse to products and retail. For example a manufacturing has to keep track of list traveling from cost center as it develops from raw materials and purchased parts to Wip (works in process) to a ended Good. While a retailer may only need to keep track of list and a assistance potentially may not even need an list account.
The industry from within a business operates is also prominent to consider. This is predominantly due to Gaap you want to be sure to setup a chart of list that will allow the business to remain conducive to the industries suitable accounting practices.
Other concerns include the needs of managers. For instance managers typically like a plane trend of expenses. I personally, don't think this is highly prominent but you may have the need to setup up any accruals that operate from a budgeted amount or you may want to setup a permanent accrual to eliminate the need to accomplish that operation monthly. It is genuinely only needful to true this list up at the end of the year if cost amounts are based on an estimate.
Inter-company transactions are also highly prominent especially when dealing with foreign businesses. The foreign factor involves minimizing tax liabilities while still managing cash. After all you don't want to get all your cash tied up in one country. This is all done straight through transfer pricing, which I am not yet distinguished to address.
Finally, leave yourself some breathing room. Make sure you are always able to add needful accounts in a logical manner. business evolves you chart of accounts should evolve with the business. Well this should help with the development of your chart of accounts.
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