Setting up my books correctly...

[Gordon N]

Hoping some of the more bookkeeping savy SBFers can help me get my books setup properly...

I have made the decision to look after the day to day financials of the new business myself, and to date I have been bobbing along using MS Office Accounting but I am not overly confident with the 'chart of accounts' accounts.

I know threads with a lot of questions can be confusing so sorry but...

1] The predefined 'construction' chart of accounts seems a little over the top - am I right or do I really need all of them (or does it depend how I operate the business)

2] Are the materials I buy for use on a customers job a cost of sale or an expense?

3] Is there a basic chart that everyone should have that can be customised (with help of course) to make sure that when I hand over the years books to an accountant/bookkeeper they will be pleasantly surprised.

My business and the way it operates financially is really straight forward, so if there are any questions/answers that might assist the advising process ask away...

 

[Scottish Business Owner]

Gordon,

Giving that you are only starting out I dont think you really need a chart of account/nominal code structure, I personally think this is overkill but I would be more than happy to modify one for you should you want to go down this route.

I would have said the materials were a cost of sale but again this is going back to this chart of account idea and i'm not sure you really need that much structure.

Is the business vat registered? I have a spreadsheet I designed that a few people on the forums actually use which they seem to think simplifies things. If you let me know whether you are vat registered or not I am more than happy to send you a copy of the more relevant one for you to compare to what you intend using.

A spreadsheet with a decent filing system should be more than enough and should not cause you too many issues at the year end. I could talk you through a few basic things you should do each month to keep your accountants costs down

 

[Gordon N]

I am not VAT registered just now and will put it off as long as possible, been their before and leaned the hard way!

The main reason for using accounting software rather than a spreadsheet is that the business process involves quotes/estimates converted to invoice. I have used a manual system for this before (alongside an accounts spreadsheet) but I soon found tracking quotes and invoices a bit of a pain. Using accounting software I can store customer and supplier information, and progress quotes to invoices knowing that everything is tied together.

I am very hopeful for the coming months as I have just secured a supplier for kitchens so can now design/supply/fit kitchens and bathrooms meaning larger turnover and (hopefully) greater profits! With this in mind I would rather get everything setup now and not have to migrate it to something else in the future.

What do you think is best?

 

[Scottish Business Owner]

Gordon,

Given the plans you have I think I agree that it needs a bit more structure but nothing more than a basic chart of accounts to be honest. You need to be comfortable with using nominal codes and have a little bit of an idea about double entry.

I've not had huge experience of MS office accounting but have used many different accounting systems. If you feel the chart of accounts is just too much then you could look at deleting the aspects that you feel dont fit your business or you could effectively build one from scratch which may actually be easier if it's only 50 or so codes.

I would also be giving the vat issue some thought if this turnover bears fruit. It wont take much for you to reach this threshold particularly if you are buying in kitchens etc and then selling on with a margin.

I'm more than happy for you to either email me a copy of a chart of accounts and then to look at making it more useful for you if it's any help. There's a few other things that you would need to do on a monthly basis to keeo things ticking over but i'm sure you could grasp them

 

[Gordon N]

Nice one , much appreciated!

I pick things up quite quick so hopefully this will be painless for you! I have had very little experience of bookkeeping though so it is still very new to me...

My understanding of a nominal code was that it is a reference number for an account, and that they indicate what type of account it is. My trouble is that I don't know how to relate certain incomings/outgoings into the correct 'type' of account....

....stock asset,fixed asset, other asset, ledgers, liability, equities, it's all a bit new to me!

Double entry I understand the concept (each transaction has and entry on two seperate accounts) but I don't technically have any experience, I thought the software would take care of that?

 

[TomB]

evening Gordon,

I have been using Office Accounting for 18 months and am quite confident with it if sorts out your chart of accounts i can give you help on using it and setting up your invoice templates and quote templates as they are so handy!!

you enter a quote export to word and if they accept it you can covert it to an invoice easy!!

drop me a PM if you need some help :thumbup1:

T

 

[stugster]

For Equiphase, I recently started using Microsoft Accounting. For Sleazy PC, I use Sage.

I'm moving from Sage to Microsoft in April. Sage is just so much more complicated and annoying.

Functionality wise, they're both the same though. Sage just doesn't let you take control as much. I keep grabbing the mouse and Sage keeps going "no! no! no! Let me! Let me!"

 

[Gordon N]

i can give you help on using it and setting up your invoice templates and quote templates as they are so handy!!

you enter a quote export to word and if they accept it you can covert it to an invoice easy!!

Thanks Tom, but using it is the easy bit I've got that (and the templates) sorted. Everything looks the part already, I just need to learn more about the accounts themselves to gain a bit more confidence. Although if you or anybody else knows if/why/when I should use a the ledgers part that would be great, I can't work out what its all about! :huh:

 

[Scottish Business Owner]

OK, I'll post this here for the benefit of everyone.

When you start moving away from spreadsheets etc and using more established accounting packages there is usually three ledgers you need to get to grips with.

Sales Ledger - This is used to record all your sales and also how much people owe you. When you raise an invoice to someone you credit your sales account and debit sales ledger/trade debtors. This is probably this automatic double entry you were thinking about Gordon This records the fact that a. you have made a sale and b. someone owes you money.

Purchase Ledger - Just like the sales ledger you also record who you owe money to and what you have purchased. This could be referred to as purchase ledger/trade creditors.

Nominal Ledger - Not likely to use this much but it can help for example if you miss code something. You can use the nominal codes to do debits and credits to move to the correct account. The nominal accounts effectively contain all the codes that make up both your balance sheet and profit & loss.

One of the checks you should follow at the month end is to make sure both your debtors and creditors reports tie back to their respective nominal codes in tha balance sheet.

How am I doing so far are you understanding this?

 

[Gordon N]

Yup got it so far, and just had a look at my ledgers and there is information in there that it has obviously filled in automatically as I raise the relevant invoices/payments/purchase orders etc. And I now understand what nominal ledger is for (at last! )

 

[Brian McIntosh]

This may be a really dumb question but what do you mean by codes ?

 

[Scottish Business Owner]

Hi Brian,

It's not dumb at all! Nominal codes are used in more complex accounting systems as a way of allocating costs. Most systems come with a default chart of accounts that can be extended or shortened to meet your needs.

These codes are then amalgamated at a higher level and they start to build into what we know as a profit and loss and balance sheet. I.e say you had three codes for mobile phone, telephone and broadband, these are likely to show on a profit and loss as something like telecoms. The generally follow a number format but more complex system have cost centres and departments to allow for departmental reporting etc.

Dont be worrying too much about it, when i'm finished with Gordon's chart of accounts it wont actually have many codes on it as most are overkill.

 

[Gordon N]

Good! Thanks !!

 

[stugster]

,

Is there a website that gives you the ranges for all nominal codes? Sage comes pre-configured with loads of nominal codes (0000's being property and depreciation, 1200's being bank accounts, 4000' being sales, etc. etc.)

In Microsoft Accounting, there doesn't seem to be as many - which is good, because I can pick and choose which ones I am going to need, i.e.
I have expenses for servers, domain registrations, and software licences all separated - rather than just "Expenses"


Would be good to get a list of all the codes for when the accountant needs it.

 

[TomB]

Hey Stu,

In Microsoftaccount you can print the chart of accounts to give to your accountant. I think in under teh company tab.

By the way i got registered for MPAN and got my free copy, thank for that!! :thumbup1:

T

 

[stugster]

Hmm..

So in my chart of accounts, should I have the cost of domain registrations as "Cost of Sale" rather than just in "Expense"?

 

[Gordon N]

So in my chart of accounts, should I have the cost of domain registrations as "Cost of Sale" rather than just in "Expense"?

Welcome to my world Stu!! :laugh:

 

[stugster]

Hehe!

I emailed my wee accountant today after your thread, just to check I'm doing things right on the web-hosting side of things (the computer support one is in sage, and she set it up for me - so I'm sure that's all good!).

I made the mistake of just inputting what Google Checkout pays out every day - rather than what we invoice the customers, and then recording the expense of Google's fees separately.

Bummer!

I have now cleared tomorrow morning and afternoon for some fun typing in of transactions!

 

[Gordon N]

Nice! Enjoy then...

 

[TomB]

Hmm..

So in my chart of accounts, should I have the cost of domain registrations as "Cost of Sale" rather than just in "Expense"?

If they are a cost of sale, ie when the customer purchases the hosting and they get a free domain then that is a cost to you for the sale of hosting.

I put down domains that i purchase for clients as a cost of sale.

my own domain is an expense.

In MOA you can also set it up so that when you enter a purchase invoice and you select teh supplier it automatically knows that its an domain and it goes in the cost of sale account.

T