The first step in setting up an accounting system for your
business is deciding what you want to track. A chart of accounts is
simply a list of your accounts and is kept by every business to
record and follow specific entries. Whether you decide to use a
manual system or a software program, you can customize the chart of
accounts to your business.
Account numbers are used as an easy account identification
system. For most businesses, a three-number system will suffice;
however, a four-number system is sometimes used for more complex
ventures. The chart of accounts is the fuel for your accounting
system. After the chart of accounts, you establish a general ledger
system, which is the engine that actually runs your accounting
system on a daily basis.
The chart of accounts is the foundation on which you will build
your accounting system. Take care to set up your chart of accounts
right the first time. Keep your account descriptions as concise as
possible. And leave plenty of room in your numbering system to add
accounts in the future.
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Excerpted from Start Your Own Business: The Only Start-Up
Book You'll Ever Need, by Rieva Lesonsky and the Staff of
Entrepreneur Magazine, © 1998 Entrepreneur Press