Accounting 101/2 - A good chart of accounts. How does it help me?

As I mentioned previously, (listen, this is great stuff !), accounting is essentially booking amounts spent or received in accounts ! But which ones ?

If you analyze carefully the previous blog graph, you shall see that your books are divided in Two large groups of accounts: the ones pertaining to the Balance Sheet and the ones falling into the Profit and Loss (also called Income Statement).

As an introduction to the accounting 'jargon', I found a very interesting link written by Jayne Smith. Moreover, Jayne to help you further in understanding these 48 key accounting words, has added for everyone of these words the following explanations:

• Definition
• What it means
• Rules and regulations (yes, unfortunately you cannot hide your salary in the 'office expenses' account)
• Related words
• Examples
• Adding up the figures

Spend some time to read and become accustomed to this accounting 'jargon', it will definitely help you to shape Your chart of accounts and will lead you automatically to get a better grip on Your business.

I also found out on Internet, a very comprehensive and handy Glossary, so interesting in fact that I decided to include it in the Topical links section so that you might want to refer to it at any point in the future.

Your balance sheet and Your profit and loss should progressively become your friends and guide you to make better business decisions by improving the visibility on Your business (in the future, we will cover additional control concepts like 'Budgeting' and 'Dashboard' ).

Now let's not forget that you also operate Your business in a given country that has its own rules and regulations (yes, nothing is simple with these accountants or tax men ...). For this purpose, see one of my previous blog "Set-up for Your business the RIGHT chart of accounts", a roadmap "to get it right the first time".

Just between you and me, the international community has now been trying for years to harmonize and standardize charts of accounts, accounting principles, practices, etc ... all under the umbrella of IAS (standing for International Accounting Standards), but do not rush up, Fra Luca Pacioli (remember this Italian scientist who invented the 'Double-entry' system) has now been waiting for over 500 years to get good accounting standards in place, so just follow the advices I gave you in the blog quoted above and You should do fine.