Chart of Accounts: What it is and Why is it important

Small business owners record numerous business transactions a day. From purchasing a new office desk, applying for a bank loan, to invoicing a customer—you have to record it in the right account. But what if you don’t know which account to record it in? This is where the chart of accounts will come in handy.

In this short guide, we will unravel the mystical chart of accounts for small business owners by describing:

• What the chart of accounts is
• Why it’s important for your business
• How TrulySmall helps your business navigate tax compliance

What is the Chart of Accounts?

A chart of accounts is an organized list of every account that a business has identified and made available for recording transactions in its general ledger. The account serves as a bird’s eye view of all your finances so that someone who’s looking at it can understand what your business is all about. An account number, account description, account type, and financial statement are the details generally listed on the chart.

The four main account types that make up the chart of accounts are Revenue, Expenses, Assets, Liabilities, and Equity.

Businesses’ charts of accounts can look different from one another based on their type of business. For example, a contractor’s chart of accounts will look very different from a small, local eatery’s chart. Factors like a company’s departments such as marketing, human resources, and sales also affect what the chart would look like, as each department usually has its own account for supplies and other purchases.

What goes into the Chart of Accounts?

There are different financial statements that each account corresponds to: the balance sheet and the income statement.

Balance Sheet Accounts

One of the most commonly used financial statements, the balance sheet takes information from the balance sheet account. This account consists of three accounts: asset accounts, liability accounts and equity accounts.

Asset accounts record resources that your business owns that provide value to your company. Examples of physical assets are equipment and cash, land and intangible items can be items like trademarks, software, and patents.

Liability accounts record all the debts that your business owes. The word “payable” will typically be shown in a liability account (i.e. accounts payable, invoices payable).

Equity accounts show what’s left of the business when you subtract all your company’s liabilities from its assets. This will help measure how valuable your company is.

Income Statement Accounts

Information generated from the Income Statement account is used to create the income statement. The two major accounts include:

Revenue accounts keep track of all income that your business brings in from the sale of goods, services, or rent

Expense accounts record all the money and resources spent in the process of generating revenues. These include wages, rent, and utilities

Why it’s Important for Your Business

Your chart of accounts is the backbone of your business’s entire bookkeeping system.

Think of it like a large filing cabinet where each individual file represents one of your business’s accounts. The better that they’re filed and organized, the easier it is for business owners to access and report on this key financial information.

A well-designed chart of accounts should clearly separate every important account that makes up your business, and make it simple to navigate which transactions get recorded in which account.

When investors approach and ask for these details, you’ll want to know where and how to access your chart of accounts, and where to find what you need.

Within TrulySmall Accounting, you can access these accounts under the “Accounts” tab to the navigation bar on the left.

TrulySmall’s Chart of Accounts

We created TrulySmall Accounting after incorporating feedback from our Kashoo customers. Included within TS ACcounting is a feature we call, Auto-Posting, which offers you a new way to get all of your financial information organized without having to do any of the heavy lifting. We wanted to revolutionize the accounting process. So now, all you have to do is connect your bank account and we’ll organize your Chart of Accounts, categorize and file your transactions, and have your exportable financial reports ready for you in less than 5 minutes.

What’s different about TrulySmall Accounting is that we’ve locked the chart of accounts to ensure that our customers can confidently know that their general ledger is up-to-date and most importantly, accurate.

TrulySmall Accounting was developed for the everyday small business owner who lacks the time or doesn’t need a complicated online bookkeeping system to manage their finances. By spending a few seconds to review and post your business transactions on the Smart Inbox, we help safeguard and uphold your business’s tax compliance come tax time to help give small business owners peace of mind.

Let TrulySmall Accounting Do The Work

Ready to see how TrulySmall Accounting has improved our systems to optimize your bookkeeping process? Test out our accounting software today with a 14-day free trial to see how our chart of accounts was simply designed to improve accounting for the everyday small business owner.