There are some basic reports to look at every month, just to stay on top of everything and make sure things are going smoothly with your finances. One of these reports is your Chart of Accounts (CoA). Are you familiar with this? We hope so! For those that could use a little breakdown on your CoA, here we go!
Your Chart of Accounts is basically a screenshot of various components of your business and how they’re doing, financially speaking. It’s important to know that this is not just a chart of all your bank accounts - the word “account” can be used interchangeably with “category” or “component.” When we say “account,” this does not mean a bank account. Keep that in mind! One of the reasons we love QuickBooks is that it automatically creates your CoA for you and you can customize it to highlight the areas you’d like!
There are typically several accounts highlighted on your CoA - assets, liabilities, equity, income, cost of sales, expenses, other income, and other expenses. Depending on your area of business, you may also have inventory, purchases, or contractors. You may need to customize your CoA to fit what your business does and what it needs to know. We recommend doing so, so each time you run a report for your CoA, you will have the most vital information right there at your fingertips!
The first account to look at are your assets, which includes all your company’s bank accounts and whatever the business owns. Liabilities include the things your business owes, and this could be in the form of loans, payroll, taxes, etc. Next is equity, which shows the money invested into your company, as well as the profitability or loss. Then, there is the expenses portion, which includes those expenses related to the business, but not the expenses associated with what you sell/offer. Your Cost of Sales/Cost of Goods Sold includes the direct costs related to the goods or services you provide. This does count as an expense, however, this is a special way to track exactly what you’re spending to create your goods or services. The final two are other income and other expenses. Other income will include income made from areas other than what your business sells, which would include income made on interest! Other expenses would include unusual expenses, like the loss on a sale of an asset.
These accounts are thought to be essential for most businesses, which is why they appear on most CoA’s. They each provide their own valuable set of information, highlighting different aspects of the financials of your business.
If you need help setting up or customizing your Chart of Accounts in QuickBooks, don’t hesitate to contact Skynar Bookkeeping. We pride ourselves on Setting Up, Cleaning Up, and Keeping Up with our clients’ books.