When creating your bookkeeping platform for the first time (or re-organizing it), the first thing to decide on is what you want your basic Balance Sheet and Income Statement financial reports to tell you.
This is where you want to have a proper Chart of Accounts set up in your platform. The Chart of Accounts is like a main neighborhood where everything (all of your financial activity) gets housed based on a certain set of criteria, which should remain consistent, but is subject to refinements from time to time.
Software Bookkeeping platforms typically have a pre-made Chart of Accounts already designed for you, based on the industry your business is classified in, but it can also be based on other criteria set by you as well. I would recommend that you base your Chart of Accounts mostly by what YOU think will be helpful for you in the long run, and not necessarily solely by what you saw another company do or what you have done before somewhere else. Every business, no matter the industry it serves, is totally unique to itself, like a personality is to a human being. It is up to you as the C.E.O. to recognize the personality of your business and understand what will best serve you to make decisions (daily, weekly, monthly, etc) for the survival of your business.
The Chart of Accounts is very important if you are to understand your financial reports and perhaps explain them to other interested parties as well. You must understand the realities and the complete health of your business for long term success.
In part 2 of this series, I will delve into getting started on creating your Chart of Accounts based on various factors.
Note: AccuraBooks is a bookkeeping firm only, so please consult with your C.P.A. for verification and clarification about the contents of this article.