Ask us about the Anatomy of a Business:
What is a General Ledger?
The general ledger provides a complete record of financial transactions over the life of the company. The general ledger holds account information that is needed to prepare financial statements and includes accounts for assets, liabilities, owners' equity, revenues and expenses. Consider it your Business’s Accounting Body.
What is a Chart of Accounts?
The predominate purpose of a Chart of Accounts is to segregate Assets, Liabilities, Income and Expenses in a manner that a business owner can quickly get a sense of a company's financial health. A well-designed Chart of Accounts not only meets the information needs of management, it also helps a business to comply with financial reporting standards for tax reporting and banking relationships. We think of the Chart of Accounts as your Business’s Spine.
Want to learn more on how the Accounts Receivable, Accounts Payable, Employees and Management fit in? Contact us for more information.
Should I track my types of Income separately and how does that relate to Cost of Goods?
When setting up your Chart of Accounts we will discuss the amount of detail you should track regarding the types of income you have. When you correlate the direct costs (Costs of Goods) you have with each category type of income you can get a Business Net Profit for each type of income you earn. One of the reasons this information is relevant is that you will know if you are pricing your products and services correctly. Keeping your accounting records up to date allows you to adjust quickly before you lose your profit margin. Other reasons are Financial Partners use this information in deciding your business financial health and your Tax Preparer will be able to produce more accurate tax returns.
Why should I have separate Expense Accounts and not just have a “bucket” for most expenses?
When setting up your Chart of Accounts we will discuss the amount of detail you should track regarding the types of Expenses you have. The more detail you have in how you separate your expenses will give you clarity to see anomalies and catch errors in time to correct them. As an example, all businesses have an Expense Account – Utilities. As you are aware this category includes; Electricity, Gas, Garbage and Water. These expenses can vary greatly due to the season. We prefer to setup sub-accounts under the Utility category, so it is easy to see if there is an unexpected jump or drop in the expenses and react quickly. We had a client that their water expense was more than double one month in the early fall. When we suggested that he have his irrigation system checked for a leak, one was detected and repaired. Not only did he only have one large water bill, if the leak was not fixed the property could have had a costly repair if not quickly noticed.