Is There a Stock Chart of Accounts That I Can Use When I Set Up My Business?
Your Chart of Accounts (COA) is an important groundwork for your business to organize your financial transactions. The specificity of your COA will determine how clearly you can view your financial statements. You want enough detail to delineate categories of cash inflow and outflow that are important to your business, but not so much detail that your financial statements are a jumbled mess.
Each account in your COA is a category or cubby hole, if you will, where you put the amounts for your business transactions and look at what's in there as needed. Setting up your COA specific to your distributorship will help you better understand, analyze and track your business. For instance, we, as distributors, buy self-promotion items for our business to promote ourselves. You could put it into marketing expense, but then you wouldn't know how much you spent on general marketing vs. self-promotions—you would just have one lump sum. Setting up accounts to track both of these would allow you to look at these expenses without additional time and effort—just the click of a button.
When you assign account numbers to your accounts, these are typically organized numerically with account numbers beginning with the following numbers by category.
Account numbers beginning with:
- 1 for Assets
- 2 for Liabilities
- 3 for Equity
- 4 for Income
- 5 for Cost of Goods Sold
- 6 for Expenses
And here are three other factors to consider when designing your COA:
What information do you want at your fingertips each month? What reports would provide that and does your COA allow for those reports? Do you want to know what the income or expense portions of your orders are from freight? Do you want to track samples?
How complex is your business? Do you have multiple sources of income that might require multiple income accounts or multiple cost of goods sold accounts?
Do you have to report to owners, shareholders, banks, etc.? What information do you need for them?
Your COA can work to show the information you need in a clear, organized fashion. Take the time to customize your COA for your business. It will be instrumental in providing information to help you analyze and run your business.
Please email accounting questions you would like considered for the column to HGatter@AccountingSupportLLC.com with the subject line of "Ask the Accountant."
Harriet Gatter, owner of Accounting Support LLC, was an ad specialty distributor for 23 years and an adjunct professor of accounting at Neumann University. She sold her ad specialty business in 2012, became certified as a QuickBooks ProAdvisor, and now works exclusively with ad specialty distributors nationwide on their QuickBooks, order management and accounting needs.