BookkeeperRearview Mirror · Are our numbers accurate and clearly organized?
Is our chart of accounts structured so we can see everything clearly?
Your chart of accounts is the filing system behind every report. Set up well, it shows margin by line, true overhead and owner costs at a glance.
Most charts of accounts grow by accident: a new account whenever something didn’t fit, the software’s default list, categories nobody remembers creating. The result is reports that are either too lumped together to explain anything or too cluttered to read.
An approach
- Match revenue to how you sell. One revenue account, or class, for each service line, product family or job type you want to see margin on.
- Split direct costs from overhead. Costs that rise and fall with the work, like materials, direct labor and subcontractors, go in cost of goods sold, matched to the same lines. Everything else is overhead.
- Keep it short. Aim for a list someone can read in one sitting, often 40 to 80 accounts. Merge accounts that hold small or similar amounts.
- Separate owner and one-time items. Give owner pay, personal expenses, interest, depreciation and one-time costs their own accounts, so profit reads clean.
- Write the rules and hold them. A one-line rule for each account, applied the same way every month. Change the structure only at the start of a year or quarter.
You can answer it when
- You can see gross margin by service or product line without a spreadsheet.
- Overhead, owner costs and one-time items each sit in their own accounts.
- The same kind of transaction always lands in the same account.
Related
Want a hand getting this part of your Finance Seat in order? We’ll point you to the right help, even when it isn’t us.
Book a discovery callA short starting guide. More detail is on the way.
