Chart of Accounts: The Backbone of your business

A Chart of Accounts tells the financial story of a business. It is the structure by which all of the financial data flows through. Each business can tailor their Chart of Accounts to reflect their organizational priorities. It is exceedingly important to get this setting right to ensure that you are able to tell the most accurate story about your business, prepare organized financials, and make business critical decisions.

What is the Chart of Accounts?

The Chart of Accounts is a list of all buckets that financial transactions in a given business should be organized into. Think of it like the business version of logging into any financial aggregating service like Mint: the main dashboard shows all of the accounts you have — checking, savings, IRA, CDs, etc. — rolled into one summary of your financial history. At a high level, the categories within the Chart of Accounts fall under the following hierarchy:

• Assets — what your company owns
• Liabilities — debts or obligations your company has in the future
• Equity — investments in your business
• Revenue — how your business is making money
• Expenses — how your company spends money

Each of those buckets have a listing of sub accounts. These sub-accounts are all in relationship with one another and these relationships are what are shown in the company’s financial statements. For example:

How to select the right Chart of Accounts

Many modern accounting systems come with Chart of Accounts templates already setup for their users. This should be one of the primary features to evaluate when signing up for a new accounting system. It is also important to have the Chart of Accounts set up correctly from the very beginning of your account history. Changes should be made to it only in relatively rare cases or at the end of your accounting period. This allows for accurate comparisons against past periods and uniform financial reporting.

More importantly, think through how you want to see the financial nature of your business presented. What level of detail do you want to be able to analyze data? If you are trading cryptocurrencies, here are some potential Chart of Accounts you might want to consider having in addition to asset accounts for each of your wallets and exchange accounts:

Revenue: Gain/Loss on Cryptocurrencies (because these entries could be a positive or negative number, you might end up showing negative revenue).

Expenses: Exchange / Gas Fees

VeriLedger is building out an accounting software that is customized for the needs of accurately and easily facilitating cryptocurrency bookkeeping.

In conclusion, the Chart of Accounts is a critical piece of an accounting system that provides the framework to compile financial statements and more importantly make critical decisions for your business.. It is important to structure this correctly from the beginning in order to create an accurate accounting history and create a meaningful view of your business.