Defining your Account Structure
Implementing a new ERP system is the perfect time to redesign your General Ledger. A well designed Chart of Accounts can make financial reporting easier and more flexible and is the backbone to your entire implementation. When thinking the design you should also think about how you would like to group similar accounts together.
The first thing to think about when designing a Chart of Accounts is the types of accounts that exist:
- Asset accounts: Can be Current (Debtors, Banks) or Non-Current (Vehicles, Equipment). Asset accounts represent the different types of economic resources owned or controlled by business.
- Liability accounts: Can be Current (Creditors) or Non-Current (Long Term Loans). Liabilities represent the different types of economic obligations by a business.
- Equity accounts: Represent the residual equity of a business (after deducting from Assets all the liabilities) including Retained Earnings and Appropriations.
- Revenue accounts or Income accounts: represent the company's gross earnings and common examples include Sales, Service revenue and Interest Income.
- Cost of Sales accounts: represent the cost directly associated with the revenue generated by a company, examples include inventory costs.
- Expense accounts: represent the company's expenditures to enable itself to operate. Common examples are electricity and water, rentals, depreciation, doubtful accounts, interest, insurance.
- Contra-accounts: Some balance sheet items have corresponding contra accounts, with negative balances, that offset them. Examples are accumulated depreciation against equipment, and allowance for bad debts.
The next step should be defining the account numbers you will use. Account numbers are generally 4 or 5 digits long, and are generally numeric, but can be alphanumeric, contain special characters and use account segments. For this exercise, we will assume account segmentation is not required. Generally the account numbers you use will determine the order your accounts will appear in so you should try to make sure that all your accounts of the same type start with the same number.
Based on this thinking, your account structure would look something similar to the below example (based on a 4 digit numerical account number) and including the account groupings:
|
No.
|
Name
|
Income/Balance
|
Account Type
|
Totalling
|
|---|
|
1000
|
BALANCE SHEET
|
Balance Sheet
|
Heading
|
|
|
1100
|
ASSETS
|
Balance Sheet
|
Begin-Total
|
|
|
1200
|
CURRENT ASSETS
|
Balance Sheet
|
Begin-Total
|
|
|
1210
|
CASH AND BANK
|
Balance Sheet
|
Begin-Total
|
|
|
1215
|
Bank (Westpac)
|
Balance Sheet
|
Posting
|
|
|
1220
|
Petty Cash
|
Balance Sheet
|
Posting
|
|
|
1290
|
TOTAL CASH AND BANK
|
Balance Sheet
|
End-Total
|
1210..1290
|
|
1300
|
RECEIVABLES
|
Balance Sheet
|
Begin-Total
|
|
|
1310
|
Trade Debtors
|
Balance Sheet
|
Posting
|
|
|
1320
|
Other Debtors
|
Balance Sheet
|
Posting
|
|
|
1380
|
TOTAL RECEIVABLES
|
Balance Sheet
|
End-Total
|
1300..1380
|
|
1390
|
TOTAL CURRENT ASSETS
|
Balance Sheet
|
End-Total
|
1200..1390
|
|
1500
|
NON CURRENT ASSETS
|
Balance Sheet
|
Begin-Total
|
|
|
1510
|
COMPUTER EQUIPMENT
|
Balance Sheet
|
Begin-Total
|
|
|
1520
|
Computer Equipment
|
Balance Sheet
|
Posting
|
|
|
1550
|
Acc Dep - Computer Equipment
|
Balance Sheet
|
Posting
|
|
|
1590
|
TOTAL COMPUTER EQUIPMENT
|
Balance Sheet
|
End-Total
|
1510..1590
|
|
1610
|
FURNITURE AND OFFICE EQUIPMENT
|
Balance Sheet
|
Begin-Total
|
|
|
1620
|
Furniture
|
Balance Sheet
|
Posting
|
|
|
1630
|
Office Equipment
|
Balance Sheet
|
Posting
|
|
|
1650
|
Acc Dep - Furn and Office Equi
|
Balance Sheet
|
Posting
|
|
|
1680
|
TOTAL FURNITURE AND OFFICE EQU
|
Balance Sheet
|
End-Total
|
1610..1680
|
|
1690
|
TOTAL NON CURRENT ASSETS
|
Balance Sheet
|
End-Total
|
1500..1690
|
|
1990
|
TOTAL ASSETS
|
Balance Sheet
|
End-Total
|
1100..1990
|
|
2000
|
LIABILITIES
|
Balance Sheet
|
Begin-Total
|
|
|
2200
|
CURRENT LIABILITIES
|
Balance Sheet
|
Begin-Total
|
|
|
2300
|
PAYABLES
|
Balance Sheet
|
Begin-Total
|
|
|
2310
|
Trade Creditors (local)
|
Balance Sheet
|
Posting
|
|
|
2320
|
Trade Creditors (Inter)
|
Balance Sheet
|
Posting
|
|
|
2330
|
Other Creditors
|
Balance Sheet
|
Posting
|
|
|
2340
|
GST
|
Balance Sheet
|
Begin-Total
|
|
|
2350
|
GST Control (Payable)
|
Balance Sheet
|
Posting
|
|
|
2370
|
TOTAL GST
|
Balance Sheet
|
End-Total
|
2340..2370
|
|
2380
|
TOTAL PAYABLES
|
Balance Sheet
|
End-Total
|
2300..2380
|
|
2390
|
TOTAL CURRENT LIABILITIES
|
Balance Sheet
|
End-Total
|
2200..2390
|
|
2500
|
NON CURRENT LIABILITIES
|
Balance Sheet
|
Begin-Total
|
|
|
2550
|
Long Term Loan
|
Balance Sheet
|
Posting
|
|
|
2690
|
TOTAL NON CURRENT LIABILITIES
|
Balance Sheet
|
End-Total
|
2500..2690
|
|
2990
|
TOTAL LIABILITIES
|
Balance Sheet
|
End-Total
|
2000..2990
|
|
3000
|
EQUITY
|
Balance Sheet
|
Begin-Total
|
|
|
3500
|
Retained Earnings
|
Balance Sheet
|
Posting
|
|
|
3990
|
TOTAL EQUITY
|
Balance Sheet
|
End-Total
|
3000..3990
|
|
4000
|
PROFIT AND LOSS STATEMENT
|
Income Statement
|
Begin-Total
|
|
|
4100
|
REVENUE
|
Income Statement
|
Begin-Total
|
|
|
4200
|
Sales
|
Income Statement
|
Posting
|
|
|
4300
|
TOTAL REVENUE
|
Income Statement
|
End-Total
|
4100..4300
|
|
4400
|
OTHER INCOME
|
Income Statement
|
Begin-Total
|
|
|
4450
|
Interest Received
|
Income Statement
|
Posting
|
|
|
4460
|
Discounts Received
|
Income Statement
|
Posting
|
|
|
4600
|
TOTAL OTHER INCOME
|
Income Statement
|
End-Total
|
4400..4600
|
|
5000
|
COST OF SALES
|
Income Statement
|
Begin-Total
|
|
|
5100
|
Cost of Sales
|
Income Statement
|
Posting
|
|
|
5990
|
TOTAL COST OF SALES
|
Income Statement
|
End-Total
|
5000..5990
|
|
6000
|
OPERATING EXPENSES
|
Income Statement
|
Begin-Total
|
|
|
6100
|
MARKETING AND INTANGIBLE EXP
|
Income Statement
|
Begin-Total
|
|
|
6140
|
Domain
|
Income Statement
|
Posting
|
|
|
6150
|
Hosting - Website
|
Income Statement
|
Posting
|
|
|
6990
|
TOTAL MARKETING AND INT EXP
|
Income Statement
|
End-Total
|
6100..6990
|
|
7000
|
EMPLOYMENT EXPENSES
|
Income Statement
|
Begin-Total
|
|
|
7010
|
Salaries and Wages
|
Income Statement
|
Posting
|
|
|
7100
|
Superannuation
|
Income Statement
|
Posting
|
|
|
7500
|
TOTAL EMPLOYMENT EXPENSES
|
Income Statement
|
End-Total
|
7000..7500
|
|
8000
|
ADMINISTRATIVE EXPENSES
|
Income Statement
|
Begin-Total
|
|
|
8010
|
Advertising
|
Income Statement
|
Posting
|
|
|
8020
|
Bank Charges
|
Income Statement
|
Posting
|
|
|
8030
|
Depreciation Expense
|
Income Statement
|
Posting
|
|
|
8040
|
Insurance - General
|
Income Statement
|
Posting
|
|
|
8050
|
Insurance - Proff Indemnity
|
Income Statement
|
Posting
|
|
|
8060
|
License Expense
|
Income Statement
|
Posting
|
|
|
8070
|
Meals and Entertainment
|
Income Statement
|
Posting
|
|
|
8080
|
Office Expense
|
Income Statement
|
Posting
|
|
|
8090
|
Telephone
|
Income Statement
|
Posting
|
|
|
8100
|
Internet
|
Income Statement
|
Posting
|
|
|
8110
|
Petrol
|
Income Statement
|
Posting
|
|
|
8120
|
Salaries Expense
|
Income Statement
|
Posting
|
|
|
8130
|
Citylink
|
Income Statement
|
Posting
|
|
|
8140
|
Rent
|
Income Statement
|
Posting
|
|
|
8150
|
Utilities Expense
|
Income Statement
|
Posting
|
|
|
8160
|
Computer Expenses
|
Income Statement
|
Posting
|
|
|
8170
|
Printing and Postage
|
Income Statement
|
Posting
|
|
|
8180
|
Discounts Allowed
|
Income Statement
|
Posting
|
|
|
8190
|
Purchases (Contractors)
|
Income Statement
|
Posting
|
|
|
8200
|
Tax Accountant
|
Income Statement
|
Posting
|
|
|
8990
|
TOTAL ADMINISTRATIVE EXPENSES
|
Income Statement
|
End-Total
|
8000..8990
|
|
9990
|
TOTAL OPERATING EXPENSES
|
Income Statement
|
End-Total
|
6000..9990
|
|
9999
|
NET PROFIT/LOSS
|
Income Statement
|
End-Total
|
4000..9999
|