What Is A Chart Of Accounts And Why Is It Important?

When it comes to organization in your business, finance should be on the top of the priority pile. Keeping things organized and processed on time makes sure the task doesn’t become too big!

Organizing your financials is what your Chart of Accounts can help with. You may have noticed this feature/list if you’ve ever set up (or registered for) accounting software. The Chart essentially organizes all of your revenue, expenses, assets, equity (if applicable), and liabilities into an easy to read and easy to understand report. 

By organizing each and every single one of your revenue streams, expenses, assets, and liabilities, you can get a quick and clear picture of exactly how your business is doing. 

If you start to organize your revenue streams, you can start to see which areas of revenue are the ‘money makers’ and the ‘money wasters.’ From there, you can make business decisions and measure how to improve the revenue or make pivots.

Similarly, you can also start to see expense trends and work on lowering, or increasing spending, in the right areas. One of the most important areas that I’m finding my clients want to measure in is Marketing Expense. Not only from a ‘Main Account’ point of view, but they want to see right down to the different spending - Google, Facebook, LinkedIn, Instagram, and Pinterest to name a few. 

You might be wondering: Why do I need to measure my assets and liabilities? Well, your inventory and accounts receivable are included in Assets. It’s important to keep track of those so you can predict when you’ll be running out of inventory as well as when you will be getting paid. As for liabilities, you can measure your accounts payable and start to plan the cash outflow. 

“But what if I don’t care about all this tracking?”

The Canada Revenue Agency requires that you keep accurate and detailed records. Whether you’re a corporation or a sole proprietor, you need to make sure you’re keeping all your records and recording all of your revenue and expenses. In Canada, as businesses, we report our taxes in Accrual, meaning recording revenue and expenses in the period in which they are earned. When you do your taxes, you’ll have to split out certain revenues and certain expenses, so it’s best to start organizing everything into their correct accounts now.

To get your free Example of Chart of Accounts, enter your info below or email info@signaloperations.com! 

Please note that this is purely for information and should not be taken as accounting or legal advice. Consult a lawyer, bookkeeper, or accountant directly for advice on structuring your Chart of Accounts for your individual need.