What are charts of accounts?
Charts of accounts are basically all the financial accounts of a company. This includes income categories, expense categories and all asset accounts.
For example:
Income accounts:
- Sports shoes
- Tennis rackets
- Swimming goggles
Expense accounts:
- Inventory
- Administrative expenses
- Rental
Asset accounts:
- OCBC business account
- PayPal account
How do I know which accounts my business needs?
You ought to talk to an accountant about this but here’s a general step-by-step guide:
- Write down all the services and products you offer
- If you offer hundreds of products, divide them into categories
- These are you income accounts
- Write down all the expenses that you business has
- Divide them into general categories such as “Rent”, “Administrative expenses” and “Inventory”
- Administrative expenses might include accounting fees, payroll fees etc.
- Look at all the accounts you have with financial institutions such as OCBC or PayPal
- This might be a long list if you’re operating a large company with a bank in every country
How is my chart of accounts connected with my transactions?
You must select an account from your chart of accounts every time you add a new traction. If you paid out $1,000 for inventory to your supplier, you must add it under the expense category “Inventory”.
Likewise, if you received $100 from a custom for sports shoes, you must add $100 under the income category “Sports shoes” and add the asset account “OCBC”.
To learn more about charts of accounts and accounting, contact WLP Academy for more information!
