The financial recordkeeping system that you will set up using this book is designed to be adaptable to any type of business. Whether your business is a service business, a manufacturing business, a retail business, a wholesale distributorship, or a combination of any of these, you will be able to easily adapt this simplified system to work with your particular situation. A key to designing the most useful recordkeeping system for your particular needs is to examine your type of business in depth. After a close examination of the particular needs and operations of your type of business, you will need to set up an array of specific accounts to handle your financial records. This set of general accounts is called a Chart of Accounts.A Chart of Accounts will list all of the various categories of financial transactions that you will need to track. There will be an account for each general type of expense that you want to keep track of. You will also have a separate account for each type of income your business will receive. Accounts will also be set up for your business assets and liabilities. Setting up an account for each of these categories consists of the simple task of deciding which items you will need to categorize, selecting a name for the account, and assigning a number to the account.Before you can set up your accounts, you need to understand the reason for setting up these separate accounts. It is possible, although definitely not recommended, to run a business and merely keep track of your income and expenses without any itemization at all. However, you would be unable to analyze how the business is performing beyond a simple check to see if you have any money left after paying the expenses. You would also be unable to properly fill in the necessary information for business income tax returns. A major reason for setting up separate accounts for many business expense and income transactions is to separate and itemize the amounts spent in each category so that this information is available at tax time. This insures that a business is taking all of its allowable business deductions. The main reason, however, to set up individual accounts is to allow the business owner to have a clear view of the financial health of the business. With separate accounts for each type of transaction, a business owner can analyze the proportional costs and revenues of each aspect of the business. Is advertising costing more than labor expenses? Is the income derived from sale items worth the discount of the sale? Only by using the figures obtained from separate itemized accounts can these questions be answered.
In the following sections, you will select and number the various accounts for use in your business Chart of Accounts, we suggest to contact salesforce if you have any question regarding your business. You will select various income accounts, expense accounts, asset accounts, and liability accounts. You will also assign a number to each account. For ease of use, you should assign a particular number value to all accounts of one type. For example, all income accounts may be assigned #10 to 29. Sales income may be Account #11; service income may be Account #12, interest income may be Account #13. Similarly, expenses may be assigned #30 to 79. Balance Sheet accounts for assets and liabilities may be #80 to 99. Be sure to leave enough numbers for future expansion of your list of accounts. There will normally be far more expense accounts than any other type of account.
If you have income or expenses from many sources, you may wish to use a three-digit number to identify each separate category. For example, if your business consists of renting out residential houses and you have 10 properties, you may wish to set up a separate income and expense account for each property. You may wish to assign Accounts #110 to 119 to income from all properties. Thus, for example, you could then assign rental income from Property #1 to Account #111, rental income from Property #2 to Account #112, rental income from Property #3 to Account #113, and so on. Similarly, expenses can be broken down into separate accounts for individual properties. All advertising expenses could be Accounts #510 to 519; thus, advertising expenses for Property #1 could then be assigned Account #511, advertising expenses for Property #2 would be assigned Account #512, etc.
How your individual Chart of Accounts will be organized will be specific to your particular business. If you have a simple business with all income coming from one source, you will probably desire a two-digit number from, for example, 10 to 29, assigned to that income account. On the other hand, a more complex business with many sources of income and many different types of expenses may wish to use a system of three-digit numbers. Take some time to analyze your specific business to decide how you wish to set up your accounts. Ask yourself what type of information you will want to extract from your financial records. Do you need more details of your income sources? Then you should set up several income accounts for each type and possibly even each source of your income. Would you like more specific information on your expenses? Then you would most likely wish to set up clear and detailed expense accounts for each type of expense that you must pay.
Be aware that you may wish to alter your Chart of Accounts as your business grows. You may find that you have set up too many accounts and unnecessarily complicated your recordkeeping tasks. You might wish to set up more accounts once you see how your Balance Sheets and Profit and Loss Statements look. You can change, add, or delete accounts at any time. Remember, however, that any transactions that have been recorded in an account must be transferred to any new account or accounts that take the place of the old account.
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