How to Create a Useful Chart of Accounts

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Your Chart of Accounts can make or break your financial planning. Make it too simple, and you won’t have enough information. But, if you make it too complex, you will get overwhelmed and unable to make the right decisions.

So how do you create the best Chart of Accounts?

Here are five simple ways.

Use Numbers for Account Codes

Don’t make up your own account codes or make it so complex that no one understands what they stand for.

Instead, use the ALERCE method. With this method (A)ssets start with a (1); (L)iabilities start with a (2); (E)quity start with a (3); (R)evenue starts with a (4); (C)OGS starts with a (5), and (E)xpenses start with a (6).

This is a uniform way to code your accounts so anyone will understand them.

Focus on Usability

Don’t focus your COA on what the IRS needs – the COA isn’t for them. Instead, it’s for you and your management team to make big decisions.

Figure out what your management team needs to make decisions that affect the direction your business goes. Make it usable for everyone that will have access to it.

Don’t Get Too Detailed

Don’t put so many details into the chart that you can’t make heads or tails out of anything. Use the abovementioned categories and, if necessary, break them down into two or three subcategories, but no more.

Have one Person Handle your COA

Don’t have so many hands in the pot that your COAs don’t make sense. Put one person in charge, but have many people review them. With one person in charge of making changes, assigning categories, and inputting data, you’ll have a more organized COA versus having too many people with differing opinions try to help.

Outsource your COA

If you’d rather not have the stress of dealing with your COA, outsource it. This ensures the COAs are up-to-date, easy to read and provide your team with the information necessary to make big business decisions.

Contact me today if you have any questions about your COA or need help creating one.