Elements Of The Accounting System: Chart Of Accounts The first step in your accounting system, a chart of accounts lists the accounts you want to track.
The first step in setting up an accounting system for yourbusiness is deciding what you want to track. A chart of accounts issimply a list of your accounts and is kept by every business torecord and follow specific entries. Whether you decide to use amanual system or a software program, you can customize the chart ofaccounts to your business.
Account numbers are used as an easy account identificationsystem. For most businesses, a three-number system will suffice;however, a four-number system is sometimes used for more complexventures. The chart of accounts is the fuel for your accountingsystem. After the chart of accounts, you establish a general ledgersystem, which is the engine that actually runs your accountingsystem on a daily basis.
The chart of accounts is the foundation on which you will buildyour accounting system. Take care to set up your chart of accountsright the first time. Keep your account descriptions as concise aspossible. And leave plenty of room in your numbering system to addaccounts in the future.
Excerpted from Start Your Own Business: The Only Start-UpBook You'll Ever Need, by Rieva Lesonsky and the Staff ofEntrepreneur Magazine, © 1998 Entrepreneur Press
