Spring Cleaning. If you have ever done it in your home, you know the feeling of satisfaction you get from getting rid of un-needed clutter and having everything you keep nice and organized. You can get that same great feeling in your business with a spring purging of your Chart of Accounts.
The chart of accounts is the infrastructure for your business. Many charts of account are set up too simply, particularly if an accounting software’s template for setting up the accounts was followed. The categories may be too broad, or over time, accounts may be added that are very specific and not regularly used.
If your company does less than $10 million in revenue a year, having a profit and loss statement that is longer than 1 page is a good sign it is time to purge your chart of accounts.
- If there are any lines on the sheet that has zero’s for the entire year, you haven’t used that account at all and it can be deleted.
- If there are lines that have less than $1000 in activity for the year, there is a good chance that line can be absorbed into another line to simplify your charts.
- Look at the names of the accounts and change them where appropriate to descriptions that best tell you exactly what the account is being used for.
- Group related accounts and merge similar accounts to avoid confusion. There needs to be enough detail to be relevant but not so much that it becomes unusable.
If you are like most entrepreneurs, you want to run your business, not be an expert. Simplifying your chart of accounts so you can easily understand where the money is coming from and going is a great step in making those monthly meetings quick and efficient. Rely on the experts at Randolph Business Resources to audit your chart of accounts once a year to make sure the reporting remains relevant as your business grows.