You have decided to a go into business and the accountant asks the question? “Have you subscribed to an accounting program yet?”. And you reply confidently, “Yep, I have signed up to MYOB” for example. Now this is when the fun begins. When you sign up to a accounting software subscription they normally provide you a simple generic chart of accounts for your new business. Firstly, you have to figure out how to process your business transactions, and Secondly, the whole point of have an accounting system is to help you run the business by providing COMPARABLE figures to see how it’s performing. XERO provides a simple definition of a chart of accounts (COA) as “a list of all the accounts you must use to record financial transactions in your general ledger. It helps you keep track of where money comes from and goes.”

However, if the chart of accounts is not setup correctly to represent the legal structure of your entity i.e. Sole Trader, Partnership, Company, Unit Trust or Discretionary Trust; And, the type of business you have, for example, Service Business, Manufacturing Business, Trading Business and so on, you will end up with the classic, Rubbish in Rubbish out, that will be no good to either you or the accountant in decision making process.

It is vitual that you get it correct from the beginning to avoid misinformation coming from you accounting system, or someone like us can review, fix it up and get you on the right track. For example, when we onboard a new client or establish a new entity we normally change the chart of accounts to correctly reflect as discussed above. However, if you want to do it yourself, I would recommend do you research as to what account names best suit you business and what you what to compare from one period to the next. And remember the old saying “Less is more”.