An accounting chart of money owed can be the distinction maker in relation to organizing the price range of your business enterprise. Take a observe this comprehensive manual on how to make one!
A organization that doesn’t have an accounting chart of bills risks losing manage over its finances.
This is because you cannot just record your financial transactions and still say to have efficient management. You should classify them as well to know these transactions themselves: when they are expenses or earnings, costs or expenses.
This is the way you gain data intelligence from your analyses and to make better decisions about money that comes in and out of the cash register.
In this article, you will learn how to create a chart of accounts and you will be able to download a ready-to-use template for your company.
Check it out below!
What is an accounting chart of accounts?
An accounting chart of accounts may be described as an orderly collection of a company’s financial and economic transactions.
It is not, however, an ordinary accounting report, but rather a compilation of standards that would bring more clarity in the company’s accounts. It is so because the tool will provide all information relevant to the business’ finances in one place.
In addition, the plan can be used as a basis for preparing important organizational documents, such as the balance sheet (BS), income statement ( IS ), cash flow statement (CFS), among others.
It contains the company’s assets, liabilities, revenues and expenses, so it’s worth exploring the concept of each of them. Check it out below!
Assets
This category includes the company’s assets and rights, which are subdivided into current and non-current assets. If they are transferred in much less than a year, they’ll be labeled as cutting-edge. If they may be transferred over an extended time period, the property might be considered non-cutting-edge.
When non-current, these assets can still be classified as:
- investments: refer to financial applications, shares, debentures and more;
- fixed assets: real estate, land, machinery, equipment and other assets;
- intangible: relate to brands, patents, licenses, among others.
- realizable in the long term: this is the case of taxes to be recovered, loan agreements, etc.
Liabilities
Liabilities are the obligations and debts of the organization, which represent the negative part of the company’s assets. They can be divided into 3 types: current, non-current and equity.
Understand:
- current: refers to obligations payable within a period of less than 1 year;
- non-current: these are obligations that can be fulfilled after 12 months;
- net worth: refers to the capital of partners or shareholders.
Revenues
Revenues represent the amounts received by the business. They can be subdivided into operational and non-operational.
Just look:
- operational: relate to earnings from product sales and service provision;
- non-operational: refers to gains obtained from investments, interest, etc.
Expenses
Finally, expenses are the costs that keep the company running but don’t produce or sell anything. Examples include salaries, freight, advertising, rent, utility bills, and loans.
How critical is having an accounting chart of bills in your commercial enterprise?
As you can see, having a chart of accounts is important in organizing the organization’s finances. It information all inflows and outflows of funds from the agency’s cash drift, which makes it easier to put together the principle accounting reports.
In addition, the plan will clearly and accurately present the organization’s results — expanding the detail of receipts and payments made. This will help with financial management, helping to keep obligations up to date and avoid default .
By so doing, you will know if the business will be profitable or has the capacity to prosper and whether it will be necessary to change strategies so that it may be viable.
Companies that have no accounting chart of accounts tend to have no clear understanding of their real financial situation and therefore future projections, and the business is likely to fail.
When the chart of accounts is prepared correctly, you will have the company’s main financial data in an organized and optimized manner. This will allow you to make the best decisions for the organization’s evolution and growth.