Step 3 - Set up your financial accounts
All businesses have general ledger accounts and now you need to determine which accounts you want to have as part of your accounting system. These are listed in your chart of accounts. Most software programs will recommend a standard chart of accounts. You may then add to the chart of accounts to accommodate special requirements for your business, such as separate revenue and cost of sales accounts for labor and materials.
The Small Business Accounting Startup Wizard walks you through the process of creating financial accounts - read the article “Set up your company”. You should select a business type in the Startup Wizard, Small Business Accounting recommends a standard chart of accounts based on your business type, which is an excellent starting point. You can add or delete accounts to suit your specific needs. After you choose which accounts will be part of your system, you'll enter opening balances for each of them. Remember, account balances for an existing business need to be calculated as of a specific point in time, usually the close-of-business on the last day of a fiscal period. After you select your accounts, review the following list to see if any of these accounts apply to your business:
Assets – fixed assets like furniture, equipment and vehicles, and other assets – patents, trademarka, software.
Inventory of goods held for sale to customers.
Business credit card accounts.
Payroll taxes payable
Sales taxes payable.
Payroll taxes payable.
Notes payable to banks or other creditors.
When placing a value on inventory, fixed assets or other assets you should use the actual costs for them. If the asset has depreciated, the lesser of cost or current market value should be used, but appreciation on assets is not recognized until the asset is sold. Liabilities are valued at the amount owed as of the start date.
Equity accounts - entering accurate asset account balances will increase your equity, and entering accurate liability accounts will decrease your equity.Small Business Accounting uses the equity account Opening Balance Equity to track changes in equity as the asset and liability accounts are created. You can be confident that if your asset and liability accounts are accurate, your equity balance will be correct. Your accountant may want to reclassify the opening balance equity into accounts like Paid in Capital or Retained Earnings, but total equity will be left unchanged.
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