The chart of accounts is the framework through which all accounting data of a business is accumulated, categorized, and retrieved. Nearly every accounting software program comes with a preloaded chart of accounts so the user can setup and start using the software in a short period of time. Unfortunately, too many users accept the preloaded chart of accounts instead of designing one that meets the needs of their business. Did you create a unique chart of accounts specific to your needs?

If you are looking to create a chart of accounts from scratch or redesign the existing chart of accounts currently being used, there are several basic guidelines that should be followed:

• Establish a global chart of accounts – Create a single framework that will be used by all business units, locations, departments or products/services so accounting information can be easily combined or consolidated for financial or regulatory reporting and tax filings.
• Utilize simple and basic logic – Create account numbering sequences and account descriptions that are easy to understand so users can easily code transactions in a timely manner.
• Limit the number of accounts – Determine the appropriate level of account detail needed for reporting and financial analysis and use sub-ledgers to track other information (e.g., customer, asset or vendor type).
• Utilize other elements to capture relevant information – Identify and use other entry fields provided by your accounting software to track project costs, business units or related party transactions.
• Consider future growth and scalability – Provide room in the chart’s numbering sequence for future growth of the business and for changes needed to comply with future regulatory and reporting requirements.
• Create centralized governance – Establish policies and procedures on who can change the chart of accounts and for what reasons.

Using a generic or a poorly-designed chart of accounts increases the likelihood of input errors and time spent on tasks that should be straightforward. Contact Flexible Accounting Services of the Triangle today for a review of your chart of accounts; our experienced professionals will assist you in designing or redesigning a chart of accounts that meets your needs.