Well today I want to discuss a very important part of the bookkeeping system which is called the chart of accounts. Perhaps someone can educate me as to why it is called that way but regardless of this piece of trivia the importance remains the same:
This is the basis for all your bookkeeping activities.
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So I hope the fact that I¢â‚¬â„¢ve given this a line of its own plus I¢â‚¬â„¢ve used a bold font makes enough impact that you pay attention and remember that this is really important.
What is it: basically the list of accounts that are used in your business to record your transactions so the chart of accounts is all the accounts that you use for you income, expenses, liabilities, assets and cost of sales.
This means that every time you record a transaction, which eventually will find it¢â‚¬â„¢s way to the ¢â‚¬Ë"general ledger¢â‚¬â„¢ you actually record it against a specific account which has to exist in the chart of accounts (COA)
A couple of points about the COA:
a.      List of accounts that you need to track
You need to make sure that the COA represents the actual accounts that are relevant to your business. If you want to record all sales in one account ¢â‚¬" that¢â‚¬â„¢s fine. If you want to be able to monitor different records for different types of sales you will need to create specific income account for each sale type.
b.     Bank accounts you use
Every bank accounts (including Pay Pal etc) you use must be represented in your COA so you can make record payments and receipts to this account.
c.      Owner accounts
If you spend money out of your own money (owner funds) you need to record this to be able to make sure that you reconcile these funds when appropriate.
d.     Expense accounts for each category
Similar to what you do with Sales, you can and should create an expense account to each type of expense that you want to monitor separately.
For example you can create transport to include public transport and car expenses or you can have separate accounts.
e.     You can create new account when needed
You don¢â‚¬â„¢t have to have the COA 100% accurate before you start and as you enter transactions you can opt to create new accounts and delete existing accounts.
(Note: you would not be able to delete accounts with active records related)
Some accounting systems use account number as the unique identifier and the way in which you select and use your accounts. Nominal also uses account numbers to uniquely identify but does not use account numbers/code to select accounts. We provide a simple auto complete text box that allows you to choose any account based on the part of the account names.
What is this about?
Nominal Accounting is all about making bookkeeping simple, we created Nominal to be a provide a simple solution for Australian Micro Businesses. In this newsletter/blog we're going to cover different aspects of business bookeeping and to try and provide a some 'lessons' or tips on how to go aboutdoing some of these simple tasks.
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The chart of accounts
