Chart of Accounts: Where Does It Fit?

Sometimes it can be confusing as to where an item should be recording in your lists of accounts. This is especially true if it is a transaction that you have never recorded before. Understanding how your chart of accounts is organized can make it easier to determine which accounts you should use for each new transaction.

This is a basic organizational layout of any chart of accounts, and the types of items entered under each category:

Balance Sheet Accounts:

Assets

• Current Assets -Cash accounts, Accounts Receivable and Inventory
• Fixed Assets – Items that will depreciated over a period of years. Vehicles, furniture, equipment, buildings and real estate.

Liabilities

• Current Liabilities – Accounts payable and any portions of debt that will be paid within the current year.
• Long term Liabilities – Mortgages and other long term debts.

Owner’s Equity

• Owner’s Contributions – Initial startup costs and other contributions
• Retained Earnings – Accumulated profits and/or losses

Income Statement Accounts:

Operating Revenue – Gross sales

• Cost of Goods Sold – Direct costs of sales: purchases, labor for services, materials, subcontracted labor

Operating Expenses – Administrative salaries, office expense, rent, utilities, insurance etc
Non-operating Revenue – Sales of assets, refunds
Non-operating Expenses – Penalties, fines etc.

This, of course, is still a very broad overview. Be watching for more detailed explanations of these accounts in our future blog posts.

Tags: Accounts Receivable, Administrative Salaries, Balance Sheet, Cash Accounts, Chart Of Accounts, Current Assets, Current Liabilities, Detailed Explanations, Earnings, Equipment Buildings, Fixed Assets, Gross Sales, Income Statement, Long Term Liabilities, Losses, Office Expense, Operating Expenses, Profits, Startup Costs, Term Debts

Income Statement Breakdown (Part 3): Operating Expenses

This is part 3 of a 4 part series on the income statement. Taking the time to understand each part of your income statement will help you to save money and make more money in your business.

In the Revenues section of your income statement, you started with Gross Sales and ended with Net Sales.  In the Cost of Goods Sold section of your income statement, you had the choice of either using the accrual method or the cash method to take the Net Sales number and end up with Gross Profit.

Now, we’re looking at operating expenses. Operating expenses, as the name implies, are the expenses associated with running your business. These expenses might include salaries, advertising, supplies, rent, insurance, utilities, and depreciation. These are added up and subtracted from the Gross Profit number we calculated in the last section of the income statement. The number we’ll end up here is sometimes called Net Profit and sometimes called “Income”.

Let’s keep building on the income statement of the fictional business we’ve been talking about, but we’ll use both the accrual example and the cash example so you can see how both work:

Read More »

Tags: Accrual Method, Business Expenses, Business Salaries, Cash Method, Depreciation, Gross Profit, Gross Sales, Income Statement, Insurance, Money, Net Profit, Net Sales, Operating Expenses, Raw Materials, Running, Shipping, Subtotal, Taking The Time

Income Statement Breakdown (Part 2): Cost of Goods Sold

Over the next few blog posts, we’re breaking down the income statement so you can understand how it works, see how it impacts your business, and find new opportunities to improve your business because of it. Last week we covered the Revenue section. We started that section with Gross Sales and finished it with Net Sales.

Now we’re looking at the second section of your income statement, Cost of Goods Sold (sometimes called “COGS”). Here, we’ll add up all the costs associated with creating your product or service, and then we’ll subtract it from the Net Sales amount you came away with in the previous section.

Read More »

Tags: Accrual, Business Week, Cafeteria, Cogs, Cost Of Goods Sold, Gross Sales, Income Statement, Measurement, Money, Net Sales, New Opportunities, Raw Materials, Stools, Two Different Ways

Income Statement Breakdown (Part 1): Revenue

Your business’ most basic numbers are revenue, expenses and profit and most people just pay attention to those. That might work at a basic level but “revenue minus expenses equals profit” is too simple. Business owners need to know how various expenses impact their business. In this 4-part series, we’ll break open the income statement so you can see how different elements work together and what each one means to you.

The first part of the income statement is the Revenue section. This is all the money that comes into your business. Gross Sales is counted here (which is all the money you get paid) and returns and discounts are taken off. At the end of this section is Net Sales.

Read More »

Tags: Break, Business Owners, Elements, Employee Wages, Gross Sales, Income Statement, Marketing, Mistake, Money, Net Sales, New Opportunities, Period Of Time