Two Types of Accounts
There are two major types of accounts:
A chart of accounts should meet three needs:
Your accounts could be the same as (or be able to be grouped into) the lines on your tax return. You can find a copy of the tax form you fill out. For example, a sole proprietor will use a Schedule C of the 1040, and a corporation will complete an 1120.
There are a few special needs, such as meals and entertainment which are only partially deductible, to which you need to pay special attention. We can help you with that. You can also see this article.)
As small business owners, we work with a gut feel, but when you see what you have made or spent in black and white, it takes on a whole new level of meaning. Your income statement and other reports should do that for you. If they don’t, you may not have your accounts set up right.
Think about how you want to see your revenue:
We can help you brainstorm based on your industry and type of business. Please contact us to schedule a review of your current Chart of Accounts and needs.
If you have been putting all your revenue into one revenue account, it will be exciting the first time you see your new Profit and Loss statement.
If you have been breaking out your revenue but it has not led to any actionable change in your business, then there may be a better way to break it out.
If you are happy with the way your revenue is broken out, then think about how you can take it to the next level.
Once you see your new chart of accounts, you will likely have even more questions. The chart of accounts can be an evolving entity, designed to serve your business needs.
This is general information and should not be acted upon without first determining its application to your specific situation. Please contact your CPA or tax advisor for additional details.
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