A New Chart Of Accounts Design

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I touched briefly how I designed my own personal chart of accounts in an earlier article .. but recently I have redesigned the chart of accounts for a new client that seems to be working great for me. So, I thought I would pass that along.

My current accounting software has the capability to create a chart of account design that holds up to 16 numbers … It is based and broken into 4 sections where you have to create this upon creation of the new chart of accounts. Once created, you cannot modify its design.

* Account Number
* Sub-Account Number
* Division Number
* Branch Number

Usually, my account numbers are always 4 digits and generally I do not use divisions. My income account would start with 4000.

In my personal account, I do use divisions, but only require 2 divisions, so my account number (4-digits) plus one division number, my first income account number would be 4000-1 … It should be noted that during input into my G/L, I don’t actually enter the dash so, I just enter 40000 or the only amount of numbers I need from left to right – as the program plugs in the trailing zeros automatically .. In this case, I would enter just “4” as my main sales without divisions, but would need “40001” for my chart of account designs with divisions.

For a lot of my accounts, I don’t use divisions but I do use sub-accounts. The reason for this is simple .. for the monthly computer generated financial statements – you want a lot of detail – for the annual ‘typed’ financial statements – accounts are summarized. When I create sub-accounts, I can trigger my financial statement design templates to either print the individual accounts, or consolidate into one figure. My accounts are based on a design usually to mimick the typed financial statement, so my account numbers would look like the following (I don’t post to accounts with * asterix)

e.g.

4000-000 * INCOME
4000-001 CONSULTING FEES
4000-002 MANAGEMENT FEES
4000-003 INTEREST
etc
6000-000 * ADVERTISING AND PROMOTION
6000-001 ADVERTISING – PRINT
6000-002 ADVERTISING – RADIO
6000-003 ADVERTISING – PHONE BOOK
6000-004 PROMOTIONS
6000-005 DONATIONS – NO OFFICIAL RECEIPT
6000-006 PRODUCT GIVEAWAYS

ETC … When I print the computer statements, I can get all the detail or just one figure. Very Helpful.

So .. This is what I did for my recent client

My client has five distinct operations .. four separate operations and ‘everything else’. I set-up the chart of accounts as follows:

* Account number – 3 digits
* Sub-Accounts – 2 digits
* Divisions – 1 digit

My first income account would start with 4000-00-0 …

My income accounts are designed as follows: (i will just use 3 divisions and examples for the Income accounts only)

400-00-0 * SALES
400-01-1 SALES – DIVISION 1
400-01-2 SALES- DIVISION 2 – PRODUCT A
400-02-2 SALES – DIVISION 2 – PRODUCT B
400-01-3 SALES – DIVISION 3
410-00-0 * OTHER INCOME
410-01-1 INTEREST – DIVISION 1
410-01-2 INTEREST – DIVISION 2
410-02-2 COMMISSION INCOME – DIVISION 2
410-03-2 CONSULTING INCOME – DIVISION 2
410-01-3 INTEREST – DIVISION 3
etc

500-00-0 * INVENTORIES, BEGINNING
550-00-0 * PURCHASES AND DIRECT COSTS
599-00-0 * INVENTORIES, ENDING

600-00-0 * ADVERTISING AND PROMOTION
620-00-0 * INTEREST AND FINANCIAL COSTS
650-00-0 * OCCUPANCY COSTS
660-00-0 * OPERATING AND INDIRECT COSTS
690-00-0 * WAGES AND EMPLOYEE BENEFITS

There you have it .. my chart of accounts has only TEN account numbers.

I designed it so instead of using sub-accounts in order, like 01, 02, 03, etc .. I went up by five count. All my similar accounts under each division are the same, so for instance, all my Repairs and Maintenance accounts are easy to remember … (in the sub-account “50’s” range, under occupancy costs)

650-50-1 REPAIRS – DIVISION 1
650-50-2 REPAIRS – DIVISION 2
650-50-3 REPAIRS – DIVISION 3
650-52-1 GARBAGE REMOVAL – DIVISION 1
650-52-2 GARBAGE REMOVAL – DIVISION 2
650-52-3 GARBAGE REMOVAL – DIVISION 3
650-53-1 MAINTENANCE MAN – DIVISION 1
650-53-3 YARD MAINTENANCE – DIVISION 3
650-60-1 HEAT – DIVISION 1
650-61-1 LIGHTS – DIVISION 1
650-62-1 WATER – DIVISION 1
650-63-2 UTILITIES – DIVISION 2
650-63-3 UTILITIES – DIVISION 3
etc etc

So … ? Did that make sense to you at all?

If you are looking for a new way to design your chart of accounts and your accounting software allows you to utilize divisions, sub-accounts etc .. then perhaps all of the above will make sense to you.

I cannot elaborate further by displaying my client’s chart of accounts or show you the output resulting financial statements, for confidentiality and privacy concerns. When I am entering transactions, if I know it is an occupancy type of expense, I would just type in the account number field “65” and hit [F2] and scroll down to the account number I need. It’s very convenient and lets me enter stuff quite efficiently .. despite as complicated as this sounds.

Take care.
HART

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