Do you want to get a good ‘picture’ on how your business is going? Do you want to know what your assets are and how much Equity, you as the Owner has in the business. If so then you need to have an awesome Chart of Accounts.
What is a Chart of Accounts I hear you say, well 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.
One of the first things you need to know when starting to do your bookkeeping is about your Chart of Accounts. This subject makes quite a long blog so I have broken it into two so that you don’t get bored
The Chart of Accounts is set up in a way similar to the Accounting Equation and you will find they are typically listed in the following order:
- Balance Sheet Accounts:
- Owner’s Equity
- Profit & Loss Accounts:
- Operating Income
- Operating Expenses
- Non-Operating Income and Gains
- Non-Operating Expenses and Losses
In today’s blog we will cover the Assets, Liabilities and Owner’s Equity.
Assets are the businesses resources – items of value owned by the business. In the Chart of Accounts you have different types of Assets, there are Current Assets and Fixed Assets.
Current Assets include, cash, accounts receivable, inventory etc. They are assets that the business can reasonably expect to convert to cash within one year in the normal course of business.
So your Chart of Accounts would be made up of Bank Accounts, Trade Debtors, Inventory and any short term loans that the business may have given to other businesses etc. You also may have some clearing accounts in the Current Assets as well, these are usually set up as Bank Accounts, so you can check how much money you owe to the Tax Office and for Superannuation etc.
Your Current Assets in your Chart of Accounts maybe set up like this:
11000 Bank Accounts
11110 Cheque Account
11120 GST/Savings Account
11130 any other bank accounts you may have
11140 Petty Cash Account
11150 Payroll Clearing Account
11160 ATO Clearing Account
11170 Super Clearing Account
11180 General Clearing Account
11190 Un-deposited Funds
11200 Account Receivable
11210 Trade Debtors
11300 Short Term Loans
11310 Staff Loans
11410 Opening Stock
11420 Closing Stock
Fixed Assets are pieces of property that a firm owns (or will own) for the long-term and they use it in the production of its income and therefore is not expected to be consumed or converted into cash in under one year. Fixed Assets are sometimes collectively referred to as ‘plant’.
Most Fixed Assets are depreciated over time. Accumulated Depreciation, which sits in the Fixed Assets section of the Chart of Accounts, is the cumulative depreciation of the assets. The depreciation of an asset during a single period (which is an expense) is added to the previously period’s accumulated depreciation to get the current accumulated depreciation amount.
To get the current value of an asset, you find the difference between its purchase price and accumulated depreciation.
Your Fixed Assets in your Chart of Accounts maybe set up like this:
13100 Computer Equipment
13110 Computer Equipment at Cost
13120 Accumulated Depreciation – Computer Equipment
13200 Leasehold Improvements
13210 Leasehold Improvements at Cost
13220 Accumulated Depreciation – Leasehold Improvements
13300 Motor Vehicles
13310 Vehicle 1 (AAA-111)
13311 Vehicle 1 (AAA-111) at cost
13312 Accumulated Depreciation – Vehicle 1(AAA-111)
13320 Vehicle 2 (ZZZ-222)
13321 Vehicle 2 (ZZZ-222) at cost
13322 Accumulated Depreciation – Vehicle 2(ZZZ-222)
13400 Office Equipment
13410 Office Equipment at cost
13420 Accumulated Depreciation – Office Equipment
13500 Plant & Equipment
13510 Plant & Equipment at cost
13520 Accumulated Depreciation – Plant & Equipment
Liabilities are the monies the company owes to people outside the business. As with the Assets, in the Chart of Accounts you have different types of Liabilities. There are Current and Non-Current Liabilities.
Current Liabilities are the company’s debt or obligations that are due within one year. They include short term debt, accounts payable, accrued liabilities and other debt.
Your Current Liabilities in your Chart of Accounts maybe set up like this:
24000 Accounts Payable
24100 Trade Creditors
21000 Credit Cards
21100 Credit Cards
21110 VISA Card – 8902
21120 AMEX – 1234
21400 Payroll Liabilities
21410 Staff Superannuation
21415 Unpaid Superannuation
21420 PAYG Withholding Payable
21440 PAYG Instalment
25000 Tax Liabilities
25500 Tax Payable (this can be split to be GST Paid and GST Collected)
26000 Unpaid ATO Liabilities
22000 Other Liabilities
22100 Directors Loans
22200 Premium Funding – Insurance
22210 Unexpired Interest – Insurance
22300 Premium Funding – Workcover
22310 Unexpired Interest – Workcover
Long Term Liabilities are obligations of the company that become due more than one year in the future. They include things like debentures, loans, deferred tax, pension obligations.
Your Long Term Liabilities in your Chart of Accounts will look something like this:
Long Term Liabilities
23000 Long Term Liabilities
23100 Business Loan
23110 Unexpired Interest – Business Loan
23200 Motor Vehicle Loan
23210 Unexpired Interest – Motor Vehicle Loan
23300 Plant & Equipment Loan
23310 Unexpired Interest – Plant & Equipment Loan
23200 Other Long Term Liabilities
Owner’s Equity is money invested in the business by the owner. It can also be defined as, when all the assets of the company are sold and all the liabilities are paid off, what is left over is the Owner’s Equity.
Capital is the amount of money the owner personally puts into the business. Drawings are what the owner personally take out of the business.
Your Owners Equity in your Chart of Accounts will look something like this:
31000 Owner’s/Shareholder’s Equity
31100 Owner’s/Shareholders Capital
31200 Owner’s/Shareholders Drawings
39100 Retained Earnings
Hopefully this helps you understand your Chart of Accounts, or if you don’t have one, or want to change things then this will steer you in the correct direction. If you would like to download a copy of the Chart Of Accounts that is listed throughout this 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.
Let me know what you like and don’t like about your chart of accounts 🙂