Setting Up the Chart of Accounts
A common question from people setting up a new company is; How are you supposed to set up your General Ledger chart of accounts for the new company?
Giving some thought to how you set up your accounts can save you lots of time later. Your accountant will thank you, anyone running reports will thank you – even the clerks entering your transactions will thank you. Here is how it works:
- GL Accounts are set up in just 5 groups:
- Assets
- Liabilities
- Equity (Net Assets in FUND)
- Income (Revenue in FUND)
- Expenses
- Each of these 5 groups are set up so that they start with their own number. Most companies set them up like this:
- Asset account numbers will all start with a “1″
- Liability accounts start with 2
- Equity accounts with 3
- Income accounts with 4
- Expense accounts with 5 (and of course, expenses often include numbers starting with 6 as well)
- Each of these groups are further broken down as necessary. For instance:
- 5000 might be your COGS account
- 5010 might be your Inventory Adjustment account
- 6000 might be your Payroll account
- 6200 might be your Taxes account
- Note that in the example above, there are 200 available accounts for assigning to the various Payroll expenses. Why would you need so many characters/segments? It depends on each companies needs. You can also use a larger account number than 4 digits if you need more accounts.
- However many digits you use in your account numbers, just remember that the first 3 numbers are really for the accountant and their reports, while numbers 4 and 5 (if used) is for management.
- Why are some account numbers larger than others? For filtering accounts when you or your accountant run reports. If I want to see all revenue accounts together in one total, you can ask for that by using a 4 (start) which is a revenue number and make a filter code: 4?? in the advance filter code in GL. Now all sales would come up.
- But, if the customer wanted store one over store two then how did they set it up? If the second number is for a store you might have this: 410,415,416,417, 420,425,426 and 427. Each number meaning some thing to the client but, now I also have separation of stores: 1= store one, and 2=store two. So to filter out the numbers you could use 42? and that would bring up all store twos and accounts: 420,425,426, and 427.
- The sample chart of accounts that you select within Cougar Mountain determines your initial account IDs. Typically, asset account ID numbers range from 10000-19999, liability 20000-29999and equity accounts range from 30000-39999. These ranges are fine, if you decide to modify them make sure that the numbers you select have room for growth. Note: the retained earnings account should always precede the current earnings account.
Kevin
Senior System Trainer
April 15th, 2009 at 12:26 pm
Further tips would include leave at least 10 numbers between account numbers so its easy to insert a new account number and leave a little room at the top of each series (eg. so don’t start 4000, start with at least 4010 even better 4100)
Its best to have the sales account number and the cost of sales account number the same except for the first digit (eg. 4010/5010 4200/5200)
Expenses can be grouped
Sales
Cost of Sales
Expenses-payroll & employee related costs
Facility expenses-Building rent, utilities, Property taxes, etc.
Operating expenses-repair & mtn, small tools, etc.
Administrative Expenses-Accounting, legal, etc.