Chart of accounts for a small business
/What to Include in the Chart of Accounts for a Small Business
A small business needs a chart of accounts to record its accounting transactions. A smaller firm can dispense with the more specialized accounts and instead use an abbreviated chart of accounts. The following list of accounts should be adequate for compiling an income statement and balance sheet under a double entry bookkeeping system. However, please note that there are nearly always special accounts used in some industries, which are not mentioned in the following list. The basic accounts are:
Assets
Cash. Includes the balances in all checking and savings accounts.
Accounts receivable. Includes all trade receivables. It may be necessary to also have an "Other Receivables" account for other types of receivables, such as advances to employees.
Inventory. Includes raw materials, work-in-process, and finished goods inventory.
Fixed assets. Can be subdivided into multiple additional accounts, such as machinery, equipment, land, buildings, and furniture.
Accumulated depreciation. One account is generally used to compile the accumulated depreciation for all types of fixed assets.
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Liabilities
Accounts payable. Includes all trade payables due to suppliers.
Accrued expenses. Includes all accrued liabilities, such as for wages and taxes.
Sales taxes payable. Includes all sales taxes billed to customers, and to be remitted to the applicable local governments.
Notes payable. Includes the remaining balance on all loans payable. For tracking purposes, it may be easier to create a separate account for each loan payable.
Equity (assumes a corporation)
Common stock. Includes the amount originally paid by shareholders for their stock.
Retained earnings. Includes all cash retained in the business from profits, which have not been distributed to shareholders.
Revenue
Service revenues. Includes all sales related to the provision of services to customers.
Product revenues. Includes all sales of products to customers.
Repair revenues. Includes sales generated by repair work and the sale of spare parts to customers.
Expenses
Cost of goods sold. This includes at least the material cost of items sold, and at a more sophisticated level, can include the cost of direct labor and allocated factory overhead.
Salaries and wages. Includes the cost of all salaries and wages not already included in the cost of goods sold.
Rent expense. Includes the cost of rent for building space, vehicles, equipment, and so forth.
Utilities expense. Includes the cost of heat, electricity, broadband, phones, and so forth.
Travel and entertainment expense. Includes the cost of travel, meals, housing, and related expenses incurred during employee travel on company business.
Advertising expense. Includes advertising and other marketing expenses.
Depreciation expense. Includes the expense related to depreciation. This is a non-cash expense.
Non-Operating Revenues and Expenses
Interest income. Includes income on all invested funds.
Interest expense. Includes interest paid and accrued on debts owed by the company to lenders.
Gain on sale of assets. Includes any gains on the sale of assets.
Loss on sale of assets. Includes any losses on the sale of assets.
It is best to consult with a CPA who understands a company's industry to see if any additional accounts should be added to this list. In general, however, the preceding chart of accounts should be sufficient for a small company.