Starting with an Industry Template
The easiest way to set up a chart of accounts is to start with a template that matches your industry. A retail business needs inventory and cost of goods sold accounts that a consulting firm does not. A construction company needs accounts for project-based costs that a restaurant does not. Most accounting software, including HelloBooks, provides industry-specific templates during setup. These templates include the most common accounts for your type of business, saving you the work of building from scratch. Choose the template that most closely matches your business, then customize it. If you are unsure which template to use, consult with your accountant or start with a general small business template and adjust as you learn what categories you need.
Setting Up Asset and Liability Accounts
Begin with your asset accounts. At minimum, create accounts for each bank account your business uses, an accounts receivable account for money owed to you by customers, and any significant physical assets like equipment or vehicles. If you carry inventory, create an inventory asset account. For liabilities, create accounts for each credit card, any loans or lines of credit, accounts payable for money you owe to vendors, and any tax liabilities such as sales tax payable or payroll taxes payable. If you have a business mortgage, create a long-term liability account for it. The key is to create accounts for financial items you need to track separately. If you have only one bank account and one credit card, you only need one account for each.
Defining Revenue and Expense Categories
Your revenue accounts should reflect your income streams. If all your income comes from one type of service, a single revenue account may suffice. If you have distinct product lines or service types, create separate revenue accounts for each so you can analyze which areas are most profitable. For expenses, think about what categories you need to see on your profit and loss statement. Common categories include rent or lease payments, utilities, office supplies, insurance, professional fees, advertising and marketing, travel, meals, vehicle expenses, software subscriptions, and bank fees. Create separate accounts for expense categories that are significant enough to warrant individual tracking. Group minor expenses into a general or miscellaneous category to keep the chart manageable.
Organizing and Numbering Your Accounts
Once you have identified all the accounts you need, organize them in a logical order within each type. Within assets, list current assets like cash and receivables before long-term assets like equipment. Within liabilities, list current liabilities before long-term ones. Assign account numbers using a consistent system: 1000s for assets, 2000s for liabilities, 3000s for equity, 4000s for revenue, and 5000s onward for expenses. Leave gaps in your numbering so you can insert new accounts later without renumbering everything. For example, number your expense accounts 5010, 5020, 5030 rather than 5001, 5002, 5003. HelloBooks manages this numbering automatically but allows you to customize it if you prefer a specific structure that aligns with your accountant's preferences or industry standards.