Your chart of accounts (COA) is the blueprint of your accounting system around which everything is built. If your COA is poorly designed, the quality of your information is affected ... which could affect the business decisions you make using the information.
What is the COA?
A tip - develop this routine early.
Where to capture your online affiliate and advertising fees.
So if you haven't guessed, your COA is a list of all the accounts in your accounting system. You use it to categorize then record your transactions onto ledger pages ... each account listed in your COA has its own ledger page. If you use the computer, it is an electronic page.
All the ledger pages from all the accounts listed in the COA are called the general ledger (GL).
When you want a financial report, the accounts (ledger pages in the general ledger) are summarized to produce the financial report requested.
Normally the chart is numerical but with small business accounting systems like QuickBooks, it no longer has to be numerical due to auto recall. A list comes up as you type in your letters allowing you to select the account you want.
COA are usually organized into seven sections that are used to summarize transactions for your financial statements. Do you recognize these categories from your balance sheet and income statement?
If you choose to have accounts numbers in your COA, don't make them sequential like 1001, 1002, 1003, etc.
Instead leave spaces for growth like this: 1000, 1010, 1020, etc.
Your chart of accounts is something you should print out and carry with you (like a shopping list) until you become familiar with it.
When you purchase something, write on the receipt what account it should be coded to by looking through your COA listing and selecting the appropriate account.
Make this a rule ... Each time you make a purchase for your business, take an extra moment to jot down on the receipt the account number or expense category -- before you forget.
Your bookkeeper (which may be you ... or not!) will love you. Everything gets entered into the correct expense category. No more scratching your head wondering what in the heck you bought or why.
Don't know your account numbers or expense categories ... then you should carry your chart of accounts around with you like a shopping list until you do!
Create one sales account called Affiliate / Advertising Income. Record all these types of income there ... no sub-accounts required.
Sales from eBooks or webinars should go to one account called Website Sales or eProduct Sales. You get the idea.
You do NOT create sub-accounts to track the income from various customers or products.
For example, if you earn Google Adsense income or affiliate fees / commissions on your website, do NOT make sub-accounts called Google Adsense, AWeber, etc.
If you want to know how much income you have earned from Google Adsense or any of your affiliates, run a Customer Sales Summary or Detail report.
Better yet, learn how to create a customized report to track your top ten customers.
Learn the best way to record your affiliate and advertsing income payments in QuickBooks here.
As a general rule, an account should NOT be named after one product or service such as Size 10 Pants or Short Haircuts. It is better to name the account Clothing or Haircuts.
This rule applies to the naming of sub-accounts too!
If you use QuickBooks, it is perfectly fine to code entries directly to an account with no sub-accounts.
If a "parent" account has sub-accounts, it is better to code directly to a sub-account.
Some advisors recommend never coding to the parent account if you have sub-accounts. Personally, I'd rather have you code to the parent account if none of the sub-accounts are quite right and you don't know where else to code. It's a quick fix for ProAdvisors so don't worry yourself over it.
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