Creating a Chart of Accounts

Creating a Chart of Accounts (COA)

for Your Startup#chartofaccounts

Ryan JohnsonVP of OperationsEarly Growth Financial Services

“Startups face a huge burden in today’s economy, often having to choose between funneling resources toward creating their goods and services or managing the often complex accounting, tax and financial strategy planning necessary to run a successful business.”

~ David Ehrenberg, Founder and CEO Early Growth Financial Services

www.earlygrowthfinancialservices.com

What is a COA?

List of accounts, designed specifically for your company, that helps you track and report each class of items for which money is spent/received.

•Aligns with your financial structure •Offers level of detail required in your financial statements•Indexed list of accounts – classifications and sub-classifications that are used to classify your financial transactions



Chart of Accounts

(COA)

The Core of Your Accounting System


6 Essential Categories for COA

#1 - Assets

Everything your company owns, which provides future value, including:

•Current assets

•Fixed assets**

•Accounts receivable (A/R)

•Inventory

•Long-term assets


** In this category, also include an account for accumulated depreciation for each asset.

#2 - Liabilities

Everything your company owes (or may owe).


Current liabilities include: Long-term liabilities might include:

• Accounts payable (A/P)• Taxes (both payroll and sales)

• Mortgage• Other long-term debt account

#3 - Owner’s Equity

Your business investments, including:

•Common stock

•Preferred stock

•Treasury stock

•Retained earnings

**May vary by corporate structure


#4 – Revenue and Cost of Goods Sold (COGS)

• Operating Revenue (primary business)– Sales revenue is your primary source of income– Sales discounts or returns (contra-revenue)

• Cost of Goods Sold (Cost of Sales)– Any direct costs attributable to the productions of

goods/services sold by a company– Cost of materials, direct labor, hosting, etc.

• Excludes indirect costs like marketing or sales commissions


Revenue – COGS = Gross Profit

#5 – Operating expenses


Tip: You may want to start with the Schedule C IRS Form. While the point of your COA isn’t merely to help file taxes, this tax form is a good starting point for building your expense account.

General Administrative

Sales & Marketing

Research & Development

• Rent• Utilities• G&A wages

• Advertising• Printing• S&M wages

• R&D wages• Hosting

fees• Developer

Consulting

#6 – Other Income or Expense Items

• Interest income• Interest expense• Gain/loss on sale of assets


Create a numbering system


• Typical COA: four-digit numbering system

• Each category of accounts shares initial digits (e.g. assets category could be 1000)

• Following digits used for sub-categories

• (e.g. each asset assigned in sequence 1000, 1100, 1200, etc.)

Look to the future…

• Your business will grow and change, so think beyond current accounts to create more robust COA

• Being more specific to your coding/approach makes business analysis simpler and more efficient


Fine-tuning your COA

• Add greater level of granularity• Depending on your business, it may make sense to offer a

greater level of detail in some categories• COA isn’t static – will grow and change as your business grows • Keep working until it is aligned with your financial plan


Using COA template?

Free samples but…

•Personalize your COA for your business•Pick and choose accounts that are relevant to your startup


Using your COA to make business decisions


• Structure of COA helps you to better interpret your financial statements and performance

• Determines how your P&L is interpreted by investors, etc.

• Make sure financial statements and COA have level of transparency that helps tell the story of your financial performance

Thank You and Q&A

Early Growth Financial Services

Ryan [email protected]


415.234.3437

Follow us @EarlyGrowthFS


mailto:[email protected]

Creating a Chart of Accounts

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