Why use a chart of accounts template for your small business?
A chart of accounts is a list of all your company’s accounts together in one place. It provides you with a birds-eye view of every area of your business that spends or makes money. The main account types include Revenue, Expenses, Assets, Liabilities, and Equity. Companies in different lines of business will have different looking charts of accounts.
The chart of accounts template should give viewers a rough idea of the nature of your business by listing all of the accounts involved in your company’s day-to-day operations.
Why use a chart of accounts template for your small business?
Implementing a chart of accounts template offers numerous benefits to your company. Here are a few reasons why your organization should consider using a chart of accounts template:
- Time-saving: The sample chart of accounts provides predefined account categories and codes, eliminating the need to start from square one.
- Accuracy: A chart of accounts template establishes a standardized structure for classifying transactions, making it easier to track and analyze financial data. By using predefined account categories and codes, you minimize the risk of errors and maintain uniformity across all financial records.
- Adaptability: Allowing you to add or modify accounts as needed, your chart of accounts template can be easily expanded without disrupting the overall structure or integrity of your financial system.
- Collaboration: If multiple individuals or departments are involved in financial management, a chart of accounts template serves as a common language for financial discussions and ensures that everyone follows a consistent categorization and reporting structure.
By leveraging a chart of accounts template, your company can establish a robust financial foundation, improve data accuracy, and streamline financial reporting and analysis.
What is the standard format of a chart of accounts?
The standard format of a chart of accounts may vary depending on the industry, organization size, and specific accounting practices. However, a commonly used and recommended format for a chart of accounts follows a hierarchical structure known as the “account numbering system.”
Chart of accounts numbering system
The chart of accounts numbering system assigns a unique code or number to each account, enabling easy identification and classification. The numbering system provides a clear structure, with the first digit indicating the major account category and subsequent digits providing further subcategories.
Chart of accounts numbering best practices
Here are some best practices for numbering your chart of accounts:
- Consistency: Use the same number of digits for each level of the account hierarchy to create a uniform structure.
- Logical sequence: Assign account numbers in a logical sequence that reflects the hierarchy and relationship between accounts. Generally, accounts within the same category should have consecutive numbers.
- Major categories: Reserve specific ranges or digits for major categories, such as assets, liabilities, equity, revenue, and expenses. For example:
- 1000-1999 for assets
- 2000-2999 for liabilities
- 3000-3999 for equity
- 4000-4999 for revenues
- 5000-5999 for expenses and so on
- Subcategories: Use additional digits to indicate subcategories within each major category. For example, in the assets section, accounts related to cash might have numbers starting with 1100, while accounts related to accounts receivable might start with 1200.
- Expansion: Leave room for future expansion or addition of new accounts by reserving unused numbers or using a range for miscellaneous accounts.
- Documentation: Document your chart of accounts numbering system, including the meaning of each digit or range.
The goal is to create a chart of accounts numbering system that is logical, consistent, and easy to navigate.
How to set up a chart of accounts template in Excel
Here’s how to do a chart of accounts in Excel:
Step 1: Download chart of accounts Excel template
Step 2: Create business accounts names
Step 3: Assign unique account numbers
Step 4: Organize into account types
Step 5: Check for discrepancies
You can find more detailed instructions on how to use our sample chart of accounts when you download this template.
What are the 5 sections in a chart of accounts?
The main account types in a chart of accounts include:
What information does a chart of accounts include?
While the specific details may vary depending on the chart of accounts template and the needs of your business, here are the common components you can expect to find in a chart of accounts template:
- Account codes: Each account is assigned a unique code or number that helps identify and categorize it within the chart of accounts. It is best practice to use a chart of accounts numbering system to keep everything organized. These codes follow a hierarchical structure. When allocating account numbers don’t forget to leave space for additional accounts and codes to be inserted in a group at a later stage.
- Account titles: Account titles provide a descriptive name for each account. They should be clear and concise.
- Account types: Accounts are typically classified into different types, such as assets, liabilities, equity, revenue, and expenses.
- Sub-accounts: In some cases, accounts may have sub-accounts to further classify transactions within a specific category. For example, under the “Expenses” category, you may have sub-accounts like:
- Advertising expenses
- Rent expenses
- Salaries and wages
- Group: Accounts are often grouped into categories to provide a logical structure. Categories can be industry-specific or based on standard accounting principles. Examples of categories include:
- Current assets
- Long term assets
- Current liabilities
- Cost of sales and more
- Notes: These fields allow you to provide additional details or explanations about specific accounts.
- Account balance columns: This column is for information only to indicate whether the account is normally increased by a debit or a credit. For example expense accounts are normally increased by a debit entry, whereas income accounts are normally increased by a credit entry.
Can this chart of accounts template be used in Google Sheets?
Yes, download our chart of accounts Excel template. Then in Google Sheets, follow these steps:
- Create a new or open an existing spreadsheet.
- Click File. Import.
- Choose the Excel chart of accounts template file and click Select.
- Choose an import location option:
Create new spreadsheet,
Insert new sheet(s),
or Replace spreadsheet.
- Click Import data and you should have this sample chart of accounts in Google Sheets.