Chart of Accounts (COA) What it is and Why it Matters

The Chart of Accounts (ie. COA) is so important to have good financial reports and to have the specific data that you need to make good business decisions. 

For instance, if you have a COA, and you have only one account called Utilities, that may work for some businesses. But other businesses may want to know how much they spend on phone bills so they can ship around and reduce their bill. OR a different company may need to know how much their electric bill fluctuates from one season to another. 

A better example of this might be COGS (cost of goods sold) where a business may want to know how much they spent on one particular product than another so they can calculate their profit for a particular product. 

So let’s jump into a brief lesson on the COA! 

WHAT IT IS

In simple terms, your chart of accounts is the list of categories and subcategories used to organize, identify + track the money moving in and out of your business

WHY IT MATTERS

If the list is cluttered and full of duplicates and errors (or just simply doesn’t fit your business model), your reports will be confusing, incorrect, and unhelpful

If it’s clean and well-organized, it’ll help produce clear reports that will help you make strategic changes – like show you exactly where you’re overspending, or which of your revenue streams are the strongest  

COMMON COA PROBLEMS

“Cost of goods sold (COGS)” and business expenses are lumped together – so you have no idea which is which

You don’t have enough sub-accounts, and all your revenue just goes into a general “sales” account … and then you have no idea how to attribute it to your revenue streams

On the other hand, too MANY sub-accounts is also an issue – and easily leads to accidental duplicate accounts and more confusion

We know – a list of categories doesn’t sound too glamourous … but this little list is the foundation to that super-glam profit and loss report everybody loves!  So it does matter to get this list right

If you want to go a little more in-depth on how the Chart of Accounts works, check out [https://quickbooks.intuit.com/learn-support/en-us/chart-of-accounts/understanding-the-chart-of-accounts/00/344814] this video. 

And, of course, if you need any help setting up or correcting your chart of accounts for your business, just let us know!  We are in COAs every day for our clients, and would love to help you with yours, too!