How setting up your Chart of Accounts correctly can get you the right Reports

Do you get the right reports for your business? Do you know what income is coming in on each product/service you are selling? What about expenses? Do you know how much you are spending on each thing in your business? The only way that you are going to know all this is if you have your Chart of Accounts set up correctly.

Last week we looked at setting up your Assets, Liabilities and Owner’s equity so that your Balance Sheet and other reports give you the information you need. This week we are looking at your Income and Expenses in your Chart of Accounts and making sure it is set up correctly so that you can get better reports…

But firstly a reminder on what is a Chart of Accounts. A Chart of Accounts is a listing of all the accounts used in the General Ledger. The accounts are what the business uses for recording transactions when doing their bookkeeping. Businesses have the flexibility to tailor their Chart of Accounts to what best suits their needs. The better you set up your Chart of Accounts the better reports you will get from your accounting program.

Revenue (Income)

Revenue (Income) is the amount of money that the company actually earns during a specific period. This includes discounts and deductions for returned merchandise. You can have Operating Revenue (income) and Non-Operating Revenue (Income).

Operating Revenue is typically earnings before interest and taxes. It is earned from the sale of goods and services specifically related to the business.

Your Chart of Accounts can look like pretty much whatever you want it to, the more detailed it is the better reports you get from your accounting program. Following is an example of what it could look like.

Operating Income

41000  Sales

42000  Miscellaneous Income

For you to get a better idea of what I mean by the more detailed it is the better, lets look at my Bookkeeping Business, this is my Revenue (Income)…

  • Bookkeeping Services
  • Payroll Services
  • Training Services
  • Software Sales

For a Hospitality Business you may have the following in your Chart of Accounts:

  • Bar Sales
    • Bar Food Sales
    • Bar Alcohol Sales
    • Bar Non-Alcohol Sales
  • Bistro Sales
    • Bistro Food Sales
    • Bistro Alcohol Sales
    • Bistro Non-Alcohol Sales
  • Function Sales
    • Function Food Sales
    • Function Alcohol Sales
    • Function Non-Alcohol Sales
    • Function Room Hire
    • Function Sundries
  • Conference Sales
    • Conference Food Sales
    • Conference Alcohol Sales
    • Conference Non-Alcohol Sales
    • Conference Room Hire
    • Conference Sundries
  • Bottle Shop Sales
    • Bottle Shop Alcohol Sales
    • Bottle Shop Non-Alcohol Sales
    • Bottle Shop Snack Sales
    • Bottle Shop Ice Sales

And it can go on and on. Remember, the more detailed your Chart of Accounts is the better reports you are going to get.

Non-Operating Revenue is gains from sources not related to the typical activities of the company. It can include gains from investments, sales of property or assets.

Your Non-Operating Income in your Chart of Accounts will look something like this:

Non-Operating Income

81000  Other Income

81100  Interest Income

81200  Trade in on Motor Vehicle

81300  Rent Received from Investment Property

Expenses

Expenses are the amounts paid or incurred for the purpose of earning revenue, such as paying wages or repairs to a vehicle, which may be used in the business.

Expenses can be broken down into Cost of Goods Sold, Operating Expenses and Non Operating Expenses.

Cost of Goods Sold are the direct costs incurred in the production of the Goods Sold by the business. This includes the cost of the materials used in creating goods along with the direct labour costs used to produce the goods.

As with the income, the more detailed your Cost of Goods Sold is the better reports you will get. Your Chart of Accounts could look like this:

Cost of Goods Sold

51000  Purchases for Resale

52000  Freight

If you were running a hospitality business your Cost of Goods Sold could look like this:

  • Bottle Shop/Bar Purchases
    • Alcoholic Beverages – Beer
    • Alcoholic Beverages – Wine
    • Alcoholic Beverages – Spirits
    • Alcoholic Beverages – Stubbies & Cans
    • Non Alcoholic Beverages – Dairy
    • Non Alcoholic Beverages – Coffee
    • Non Alcoholic Beverages – Cordials
    • Non Alcoholic Beverages – Juices
  • Bistro Expenses
    • Food Purchases
    • Coffee Purchases
    • Dairy Purchases
  • Supplies
    • Bistro Supplies
    • Kitchen Supplies
    • Bar Supplies

Operating Expenses are expenses incurred in the carrying out of the businesses day-to-day activities; they are not directly associated with the production of goods or services.

Once again, the more detailed your expenses are in your Chart of Accounts the better reports you will get. Your Chart of Accounts can look like this:

Operating Expenses

61000  General and Administrative

61110  Accounting Fees

61120  Advertising

61130  Bank Charges

61140  Bookkeeping Fees

61145  Client Gifts

61150  Computer Repairs/Supplies

61155  Couriers

61160  Depreciation Expenses

61165  Donations

61170  Expensed Equipment

61180  Insurance

61190  Legal Fees

61200  Meeting Expenses

61210  Office Supplies

61220  Postage

61230  Printing

61240  Subscriptions/Registrations

61250  Taxis/Travel

62000  Communication Expense

62110  Fax

62120  Internet

62130  Mobile telephone

62140  Telephone

63000  Motor Vehicle Expenses

63100  MV – Expense – Vehicle 1 (AAA-111)

63110  MV 1 (AAA-111) – Depreciation

63120  MV 1 (AAA-111) – Fuel

63130  MV 1 (AAA-111) – Parking & Tolls

63140  MV 1 (AAA-111) – Registration & Insurance

63150  MV 1 (AAA-111) – Service & Repairs

63200  MV – Expense – Vehicle 2 (ZZZ-222)

63210  MV 2 (ZZZ-222) – Depreciation

63220  MV 2 (ZZZ-222) – Fuel

63230  MV 2 (ZZZ-222) – Parking & Tolls

63240  MV 2 (ZZZ-222) – Registration & Insurance

63240  MV 2 (ZZZ-222) – Service & Repairs

64000  Occupancy Expenses

64110  Electricity

64120  Gas

64130  Property Insurance

64140  Property Taxes

64150  Rates

64160  Rent

64170  Water Rates

66000  Payroll Expenses

66110  Fringe Benefits Tax

66120  Staff Amenities

66130  Staff Recruitment

66140  Staff Training

66150  Superannuation Expense

66160  Wages & Salaries

66170  Workers’ Compensation

66180  Other Employer Expenses

Non Operating Expenses are expenses incurred by activities not relating to the core operations of the business. They can include interest charges or borrowing costs.

Your Chart of Accounts may look like the following:

Other Expenses

91000  Interest Expense

92000  Loss on Sale of Motor Vehicle

93000  Investment Property Expenses

99999  Client to Advise

We use Client to Advise for items we are unsure of. We then take the list to the owner of the business and ask them where to allocate these expenses.

So now you have a better understanding of the Chart of Accounts, take a look at yours, what improvements can you make? What accounts do you better understand now? If you would like to download a copy of the Chart of Accounts that is listed throughout this post and last weeks post, just click HERE.

If you would like to download an Excel version so you can import it into your accounting program please click on the button below.

Click Here to download my Chart of Accounts Spreadsheet

An let me know what you like and dislike about your Chart of Accounts and what you have changed since reading this blog 🙂




Please note: I reserve the right to delete comments that are offensive or off-topic.

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