In part 2 of these series regarding the Chart of Accounts setup, I will delve into thinking about the various ways you can recognize income in your Chart of Accounts.
Income (or revenues or sales) can be recognized based strictly on what you are selling, or you can just have on income account called “Sales” if you are not concerned about fancy names in your Chart of Accounts, this basic name/title approach can be most useful if you are just beginning your small business and your sales are rather minimal and not complex for right now.
However, the following are examples of income/revenues/sales titles you can consider when creating your Chart of Accounts:
- Retail Sales: these are sales directly to consumers.
- Wholesale Revenues: these are sales to other retailers or distribution networks.
- Consulting Income: perhaps you are a coach or some other type of consultant.
- E-Commerce sales: online sales
- Service Sales: this is more of a general category but might be sufficient to group all of your service-related income no matter what services you are providing.
- Product Sales: this too is more of a general category to group all of your product sales. However if you are selling a number of different types of product lines, it is recommended you perhaps create income sub-accounts to recognize these different product lines sales on your Income Statement.
There are also other types of income accounts, called more specifically contra-income accounts, because these will always have negative balances:
- Discounts: these are direct discounts given to your buyers or customers upon a sale. Popular examples include: Terms (for deductions if invoices are paid early) and Damages (if your sold products arrive at a customer’s destination that contain damages).
- Refunds: if you actually refund cash back to your customers (instead of giving invoice/sales receipt discounts or credits to be used later by the customer).
- Merchant and Seller Fees: Consult with your C.P.A. to find out if it is recommended you deduct these fees as part of your overall income recognition or as perhaps as a separate Cost of Goods Sold or even company overhead expenses instead.
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.