Posted on Jun 16, 2011 | 0 comments
As your Chart of Accounts grows, it is a good idea to consider numbering the accounts. Implementing a numbering system into your Chart of Accounts will reduce the potential for errors when assigning transactions to an account, and will assist in communication. A good example chart of accounts with numbering will have a system that:
- Establishes a pattern,
- Provides you room to add new accounts.
Using four digits will allow you to specify the account type, but still allow plenty of number combinations for the future. To begin with you may want to assign an account every 5, 10, or even 100 numbers. This will allow you to add additional accounts in the future in a systematic way.
Here is an example chart of accounts numbering system
- 1000-1999 – Asset Accounts
- 2000-2999 – Liability Accounts
- 3000-3999 – Equity Accounts
- 4000-4999 – Revenue Accounts
- 5000-5999 – Cost of Goods Sold
- 6000-6999 – Expense Accounts
- 7000-7999 – Other Revenue / Other Income
- 8000-8999 – Other Expenses
Here are some example Chart of Account scenarios when numbering your example Chart of Accounts would have been helpful
You have a check for taxes that has cleared your bank. If we just had a list of the account names that included “Tax” it could be difficult to which account to assign it to, however if our tax accounts were numbered, and we knew that they check was for a local business tax, we would know to look for the tax account with a number in the 6000’s, for the expense account. A tax account in the 2000’s would be incorrect, because that is paying a liability account, such as Sales Tax Payable
You have two bank accounts with ABC Bank, one for general expenses, the other for payroll. If you ask someone record a check that you wrote against the account with ABC Bank, there is a chance that the check could be recorded in the wrong account, making reconciliation difficult. If you had numbers assigned to each account, you could give instructions with the specific account number, reducing the chance of an error
Implementing a numbering system into an existing chart of accounts is possible; however it would be easiest to start out with a numbering system when your list of accounts is smaller. If you have an existing example chart of accounts, at times it is better to merge those accounts with corresponding new, numbered accounts.
We have example chart of accounts available for Quickbooks users, which can be easily loaded into a new or existing company file. Please read our Sample Chart of Accounts page to find out more.
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