The Elysian Fields Guide to Your CHART ACCOUNTS* *How to find your money and organize your books. Chart of Accounts Guide Elysian Fields

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1 The Elysian Fields Guide to Your CHART OF ACCOUNTS* *How to find your money and organize your books. Chart of Accounts Guide Elysian Fields

2 INTRODUCTION Think of the Chart of Accounts as the Dewey Decimal System for your business. We made this guide to help file and find the financial transactions that we, as business operators, use every day. These are the receipts, invoices, statements, and communications which reference the money we receive and expend in business operations. Together with our system, this guide will help you to track how and where each individual transaction fits into the bigger picture of how much money you have and owe, and how profitable you have been. WHY DO YOU WANT A SYSTEM ANYWAY? To put it simply, having a clear system of organizing your company/organization s money transactions makes it easy to find paperwork, and enables a company to have clear records and information which can inform analysis and future decisions. We work with many owners who are frustrated by running their business without accurate and informative numbers; who are frustrated by the money they have to spend because of missed filings or deadlines; and who are frustrated by the time they have to devote to managing money. All of these frustrations distract from company goals and personal interests and will hinder your growth. As a business owner or organization leader, you need current and accurate information on your cash position and profitability to operate the business and make informed decisions. Our goal is to minimize, and even do away with these frustrations, and give owners a system for more easefully getting a handle on how much money you have and owe. We want you to know how to organize your receipts, and understand how each transaction fits into the larger picture of your business. We want you to approach tax season without dread (you can even send this guide to your accountant, so that you re speaking the same language). HOW IT WORKS Elysian Fields uses a numbered chart of accounts because we find it easier to find and file transactions and receipts (some accountants just use word descriptions without numbers). The numbers become a shorthand in the QuickBooks file itself, electronic cloud file cabinet, and in the coding of file names and a are clear way to organize, name, store, and find files. We set up the system this way to be able to draw a precise line from a transaction in QuickBooks to a file in the cloud folder to a transaction on the Balance Sheet or Profit & Loss. This creates an efficiency in communication and workplace administration among the bookkeeper, accountant, business owner, and manager. A secondary Chart of Accounts Guide Elysian Fields

3 benefit is being able to see the place of each specific transaction in the larger P&L and Balance Sheet Reports; a numbered transaction in your Quickbooks folder will correspond to the equations in your reports. The chronology of the code corresponds to a company s two primary financial reports, the Balance Sheet, and the Profit & Loss (also called the Income Statement). The first three categories are the Balance Sheet ( ), and the last five categories are the P&L ( ) ASSETS LIABILITIES EQUITY REVENUE COST OF GOODS/SERVICES EXPENSES OTHER INCOME OTHER EXPENSES REPORTS: BALANCE SHEET AND PROFIT & LOSS The two primary financial reports used most frequently by businesses & organizations are the Balance Sheet and the Profit & Loss report (also called the Income Statement). BALANCE SHEET The Balance Sheet summarizes the status and value of how much money the company has and how much the company owes at a point in time, which could be today, or the end of the last fiscal year. The first three COA categories form the equation for the Balance Sheet. Equity is also called Book Value. How much money a company has, minus how much money a company owes, is the book value of the company LIABILITIES EQUITY = ASSETS Chart of Accounts Guide Elysian Fields

4 PROFIT & LOSS The Profit & Loss report shows how much money a company made in profit or loss over a period of time. This period of time is most often a year or a month, but can be as short as a day, or as long as multiple years. The report starts with a company s revenue and subtracts the direct costs of producing the item or service sold by the organization. The difference between the two is the company s Gross Profit. Expenses are regular expenditures made in support of running the business which include personnel, occupancy, operating, administration, and marketing. Revenue minus costs of production, minus expenses, is a company s Operating Profit. There are times that companies receive funds and have expenditures outside its normal course of business. These are Other Incomes and Other Expenses. Operating Profit plus Other Income and minus Other Expenses is the Net Income. For many organizations, a company s Operating Profit is the same as the company s Net Income REVENUES COSTS OF GOODS SOLD = GROSS PROFIT GROSS PROFIT EXPENSES = OPERATING PROFIT OPERATING PROFIT OTHER INCOME OTHER EXPENSES = NET INCOME Chart of Accounts Guide Elysian Fields

5 ELYSIAN FIELDS CHART OF ACCOUNTS THE ELYSIAN FIELDS CODING SYSTEM In the EF cloud-based folder organization system, all check stubs, receipts, or documentation for transactions for each account (bank account, credit card, PayPal account, etc.) are saved in that respective account s folder. The checking account is _CHECKING. Each month has its own folder where you can save the check stub. For example, if the check was written in May 2015, you would save the check in the _201505_MAY folder. We also save a copy of the check image, receipt, etc. in the respective vendor s folder in the 21000_ACCOUNTS_ PAYABLE folder ASSETS record the value of the money and other assets owned by the company. Assets may be tangible or intangible. Tangible assets include current assets and fixed assets. Current assets include cash, accounts receivable, and inventory; fixed assets include buildings and equipment. Intangible assets are nonphysical with market value including goodwill, copyrights, trademarks, and patents CASH AND EQUIVALENTS include all of the company s cash available accounts. These accounts may be, or quickly converted to cash currency. These include the bank deposit and operating accounts, savings accounts, money market accounts, and merchant accounts. Cash and Equivalents specifically include: PETTY CASH is the total of banknotes and coin available on site. Companies utilize a Petty Cash account based upon their specific operations. Not all companies main tain petty cash BANK ACCOUNT - OPERATING is the company s primary operating account. Companies may use a second, or multiple bank accounts. Some companies utilize a BANK ACCOUNT - SAVINGS or BANK ACCOUNT - TAXES or BANK ACCOUNT - EXPENSES, or BANK ACCOUNT - PAYROLL, for payroll checks MERCHANT ACCOUNT is the company s primary merchant services provider. Merchant services are a platform to receive and process credit and debit card payments. PayPal, Square, Stripe, and Google Wallet are commonly used Merchant Account providers CERTIFICATES OF DEPOSIT (CDs) are savings accounts insured by the bank and considered risk free. Some companies utilize them; most do not. CDs offer the bene fit of higher interest rates than savings account, but the funds are not available to the com pany for the duration of the CD s term ACCOUNTS RECEIVABLE are the outstanding invoices issued by the company to its customers or clients for which it has not yet received payment. They are revenues due to the company, tracked in increments of 30-days. Many companies seek to collect in no more than 30- days. Specific industries have their own cycles which may be up to 120-day collection cycles. Chart of Accounts Guide Elysian Fields

6 UNDEPOSITED FUNDS are monies received which have not yet been deposited into the bank account. These funds are most often the checks physically received by the company prior to their deposit VENDOR DEPOSITS are those deposits and prepayments made to vendors for which the company has not yet received benefit. This practice and account is used by some companies and not by all INVENTORY is the stock of goods and or materials owned by the company. Such goods and materials may be counted and assigned a monetary value. Service providers do not usually have inventory is an open account for company specific assets EQUIPMENT + FURNITURE are fixtures, furniture, machinery, and equipment, including computer equipment. The minimum value is $550 per-item. Depending upon the item and industry, the asset may be depreciated over multiple years. Depreciation schedules affect the calculation of net revenue in the calculation of a company s tax obligations. Companies and their accountants may choose to categorize such expenses as EQUIPMENT or COMPUTERS + PERIPHERALS based upon the operations and tax obligations of the company INTANGIBLE ASSETS may include patents, copyrights, franchises, goodwill, trademarks, and trade names for which the company has demonstrated market value, most often through a sale or purchase of the intangible asset ACCUMULATED DEPRECIATION is the total of DEPRECIATION EXPENSES of an asset over multiple years to a single date. The DEPRECIATION EXPENSES is counted for one period, usually a year, after which it is added to the previous year s accumulated depreciation LIABILITIES represent any debts or obligations owed by the company to a third party, whether they be loans, outstanding balances, or accumulating payables. Liabilities are settled (zeroed out) by transferring funds between the liability account and the suitable expense account ACCOUNTS PAYABLE (A/P) include funds due to vendors, service providers, or creditors on a short term basis. Until bills are paid, they are considered liabilities under A/P. The company should have agreed upon terms with each vendor for due dates for bills (for example, Net 7, Net 30, Net 120, or Cash on Delivery-COD) CREDIT CARDS represent purchases or credits received on lines of credit. Credit lines are extended from banks, stores with credit programs, or credit card companies. The funds involved in transactions on credit cards or classified as liabilities until funds are transferred in from an asset account to cover the liability (that is, pay the bill) CUSTOMER DEPOSITS represent funds paid by clients to confirm or hold an order or sale. Because the transaction is a deposit and not a payment, the amount is considered a liability until the sale occurs, and the company delivers the product or service to the customer. Chart of Accounts Guide Elysian Fields

7 (LIABILITIES cont...) PAYROLL LIABILITIES represent accruing funds that are due to employees or subcontractors for labor or services provided. When payroll funds are paid by the Company, the sums in this liability account would be debited to the appropriate expense account SALES TAX LIABILITIES represent tax due on sales within a certain locality. Different localities charge different amounts for sales tax SALES TAX PAYABLE STATE represents tax due on the company s sales to the state in which the business operates. Not all states charge sales tax. The Pennsylvania sales tax rate is 6% SALES TAX PAYABLE CITY represent tax due on the company s sales to the city in which the business operates. Not all cities charge additional sales tax. The Philadelphia sales tax rate is an additional 2% (on top of the 6% PA rate) EMPLOYEE REIMBURSEMENTS are monies expended by employees within the normal course of business which are to be reimbursed by the company in no more than one payroll cycle SHORT TERM LOANS represent financial obligations due by the company to a third party. Short term loans are due in one year or less, while long term loans last over one year LONG TERM DEBT represent loans due over a period longer than one year. This may be a bank loan, or series of loans from friends and family LOANS DUE SHAREHOLDERS represent funds contributed by the company s owners or shareholders. These are funds which owners expend of their own with the intention that they will be repaid within twelve months. These are tracked separate from SHORT TERM LOANS and LONG TERM DEBT because owners are obligated to repay themselves in the same category as they are obligated to repay other creditors EQUITY is the difference between a company s assets and liabilities. Equity is positive when assets are greater than liabilities, and negative when the opposite is true. Another term for Equity is Book Value EQUITY CAPITAL is the founding capital contribution of the company owners EQUITY CONTRIBUTION is the capital contributions of the company owners subsequent to EQUITY CAPITAL EQUITY DISTRIBUTIONS is the monies disbursed to company owners as owners draws, distributions, or dividends SHAREHOLDERS EQUITY is the equity in the company owned by shareholders who are not the primary or managing owners RETAINED EARNINGS is that portion of Net Income not paid out as EQUITY DISTRIBUTIONS, and retained by the company which becomes Equity. Chart of Accounts Guide Elysian Fields

8 REVENUE is the receipt of payments from customers or clients for the provision of goods or services. The subcategorization of this account is based upon the industry and organization of each individual company COST OF GOODS/SERVICES SOLD are the costs to the company of the material goods or production of services of the goods or services sold to clients or customers. The subcategorization of this account correlates to REVENUE, and likewise based on the company s specific industry and organization EXPENSES are day-to-day expenses of running the business, which are specifically not those of COSTS OF GOODS SOLD or COSTS OF SERVICES SOLD PERSONNEL EXPENSES represent costs related to people, including wages, benefits, trainings, and payroll taxes incurred by the organization WAGES-W2 include employee wages from which payroll taxes are withheld and reported on Form W-2. Many companies use PAYROLL SERVICES to report and pay wages and payroll taxes CONTRACTORS-1099 include wages paid to independent contractors who are hired for a job. The company issues these subcontractors a Form-1099 prior to January 31 of the subsequent year PAYROLL TAXES are calculated as a percentage of the WAGES-W2 wages that the employer pays to the employee BENEFITS include non-wage compensation provided to employees in addition to their normal wages or salaries. Common examples include Workers Compensation and medical insurance MISCELLANEOUS PERSONNEL EXPENSES include costs related to trainings or the hiring process OCCUPANCY EXPENSES are costs related to the rent, lease, use, and maintenance of the business operating location RENT are fees paid in order to rent, lease, or use the business location UTILITIES include expenses incurred to maintain daily use of the organization s location. This includes expenses such as electricity, heat, and water, and does not include phone or internet service FACILITIES are fees paid for services to maintain the upkeep of a the business occupancy location such as waste management services, pest control, cleaning, and other providers who maintain the property REPAIRS + MAINTENANCE capture costs relating to the maintenance of the occupancy location. Purchases made at hardware stores may be categorized as such so long as the items are used solely for the maintenance of the business office or location. Chart of Accounts Guide Elysian Fields

9 (EXPENSES continued...) MISCELLANEOUS OCCUPANCY EXPENSES capture any other occupancy expenses that may be incurred DEPRECIATION EXPENSES is a non-cash expense. The depreciation expense is often recorded by journal entry and applied at December 31, when the credit is added to ACCUMULATED DEPRECIATION OPERATING EXPENSES represent costs that are incurred in the day-to-day activities of operations OFFICE SUPPLIES are tangible goods necessary for completing any front or back-end task of operations EQUIPMENT includes small equipment or tools for the office costing less than $550, separate from any technology devices PRINTING + COPYING include the production of any printed materials or documents, such as toner cartridges, printer paper, or large print jobs completed by a professional third party TELEPHONE + INTERNET encompass the purchase of landline and cellular phones and service, as well as subsequent data charges, and monthly cable internet or other wireless services POSTAGE + DELIVERY capture costs relating to the mailing and delivery of documents or items that are not being shipped as product or items sold to generate Revenue. This includes stamps, and packaging. This does not include shipping charges on orders which would be Cost of Goods Sold AUTO include the costs of maintaining a company-owned vehicle, auto insurance, fuel costs for rental cars, mileage reimbursements on personal vehicles used for company-related travel TRAVEL include lodging, air or ground transportation to and from a destination, and includes taxis or other third-party car services used solely for transportation to and from a business-related activity MEALS represent food consumed during business-related meetings and functions only, and during travel MISCELLANEOUS OPERATING EXPENSES capture any other operating costs that may be incurred ADMINISTRATIVE EXPENSES include costs incurred as a result of the different aspects of management. Chart of Accounts Guide Elysian Fields

10 (EXPENSES continued...) BANK FEES include charges on any transactions or account, in accordance with your bank or financial institution s policies. Overdraft, wire transfer, monthly Maintenance, and deposit per item fees are some examples MERCHANT FEES include any fee that any system or service used for receiving payment from customers may charge you, either at the time of each sale, or monthly as a result of using any sales platform. These fees may be from credit card processing platforms in general, and MERCHANT ACCOUNTs specifically PROFESSIONAL FEES include fees paid to individuals or professional groups, who may provide legal or accounting services, advising, mediation, or any service assisting in the management of your business PAYROLL SERVICES are the costs of utilizing an outside payroll service provider, specifically for the charge of completing your payroll transactions and filing the appropriate taxes INSURANCE includes insurance policies held by the business, as a necessity of operations. This most of ten is a form of General Liability insurance. Different industries require different kinds of professional insurance LICENSES + PERMITS include costs of municipal, state or federal permits to open and operate your business, certificates of qualification, licenses, and regulatory inspection SOFTWARE + APPS include all software programs and applications used for business purposes, spreading across all systems and technology devices COMPUTERS + PERIPHERALS encompass costs of less than $550 in purchasing or maintaining any physical computer or technology device, including chargers, external drives, cables, hardware and accessories MISCELLANEOUS ADMIN EXPENSES captures any other administrative expense MARKETING EXPENSES are any costs generated in the course of promoting and publicizing the business and its goods and services in order to support current operations, and attract and acquire more customers or clients ADVERTISING includes expenses relating to purchasing or generating advertisements in print, radio, television or other non-web-based media WEB + SOCIAL MEDIA expenses are the costs relating to a company s web presence including its own website, and purchasing ad space and promoting the business on the web, or on any social media platform, such as Twitter or Facebook. Chart of Accounts Guide Elysian Fields

11 (EXPENSES continued...) GRAPHIC DESIGN covers the design-related costs of any website, branding or logo design for your business, as well as in the creation of images used for advertising BUSINESS DEVELOPMENT includes the cost of conferences or seminars, meetings, professional trainings and continuing education in your field, to further develop your business MEMBERSHIPS + DUES are any fees paid to outside organizations, which you may belong to as a way to promote your business or to participate in activities relating to your professional discipline CONTRIBUTIONS + DONATIONS are any monetary gifts to charity or nonprofit organizations GIFTS TO CUSTOMERS include expenses relating to promotional or holiday or other gifts to your customers OTHER INCOME encompass earnings from activities other than normal business operations, such as investment interest, foreign exchange gains, rent income, and profit from the sale of a non-inventory asset INTEREST INCOME is the amount of interest that has been earned over a period of time TAX DISCOUNTS are those savings offered by some tax authorities for the timely remittance of tax payments REWARDS encompasses income generated by purchasing a product or utilizing a service. These are typically seen as credit card rebates OTHER EXPENSES are costs from activities other than normal business operations INTEREST EXPENSES is a non-operating expense representing interest payable on any types of borrowing such as bonds, loans, or lines of credit TAXES are fees paid to the local, state, or federal government ASK MY ACCOUNTANT is an account category utilized by the company, bookkeepers, and accountants as a placeholder for transactions when one is unsure how to categorize something. Chart of Accounts Guide Elysian Fields