The chart of accounts is the foundation of accounting. Used to record transactions in the general ledger, the chart of accounts can be tailored to suit the accounting needs of your construction business.
In this video…
In this video, you’ll learn what goes into a chart of accounts, and how to organize yours for the best results. In accounting for construction businesses, keeping things as simple as possible will help you stay organized and make things easy to update. You can always add more later.
What is a Chart of Accounts?
Chart of accounts is the foundation of your accounting for any construction business. Your chart of accounts lists the names of all the accounts that your business uses, and are available to record transactions next to in your general ledger. You can tailor your chart of accounts any way to like to best suit your company needs. Consider how detailed you want your financial reports to be. You’ll need a very well-planned chart to get meaningful and accurate financial statements.
How to Organize a Chart of Accounts
It’s helpful to start by classifying your accounts in categories. Use a logical numbering system, and be sure to leave room to add new numbers when necessary.
A chart of accounts for a construction business is usually organized in the following order:
- Balance sheet accounts (assets, liabilities, and owners’ or stockholders’ equity)
- Income statement accounts (revenue)
- Direct expenses, or job costs, and overhead expenses
The bottom line will result in your net profit.
Keep it Simple!
It’s best to keep your construction accounting methods simple, and your chart of accounts is no exception. Keep it as simple as possible to start with. You can always add accounts as you need them.
In the next video, we’ll learn what the trial balance is used for.
Next Video: Trial Balance