What Is A Chart of Accounts...And Why Is It Important?

Imagine yourself standing in a library, surrounded by shelves and shelves of books. Thousands of books – and you need to find one particular book.

The way to shortcut the time, substantially, in locating that book is by having some sort of method to classify and index the thousands of books sitting on the shelves.

The same is true with your businesses “books” - your

businesses financial records. Your books may have hundreds, if not thousands, of transactions on an annual basis. If you do not have a Chart of Accounts set up to classify and index those transactions, you will have great difficulty in locating and categorizing transactions for taxes, financial reporting, and audits.

A Chart of Accounts (COA) is a classification system to help you categorize your business financial transactions.

When a COA is being set up for your business, it is the basis for all your financial statements. The categories set up feed into your Profit and Loss Statement (P & L), Balance Sheet, Expenses, Income, Total Assets – and many other reports.

If the COA is not set up properly, errors and misinformation will end up in your financial statements. Erroneous information will be influencing decisions being made such as budgeting, tax reporting, payroll, bills being paid, invoices being sent….and on it goes.

Setting up an accurate Chart of Accounts, and maintaining the data being entered, is imperative to make accurate and effective decisions for your business.

Next up...Chart of Accounts Basics!

If you have any questions regarding bookkeeping, please do not hesitate to contact us and schedule a FREE 30 minute consultation.