The Chart of Accounts (ie. COA) is so important to have good financial reports and to have the specific data that you need to make good business decisions.
For instance, if you have a COA, and you have only one account called Utilities, that may work for some businesses. But other businesses may want to know how much they spend on phone bills so they can ship around and reduce their bill. OR a different company may need to know how much their electric bill fluctuates from one season to another.
A better example of this might be COGS (cost of goods sold) where a business may want to know how much they spent on one particular product than another so they can calculate their profit for a particular product.
So let’s jump into a brief lesson on the COA!
WHAT IT IS
In simple terms, your chart of accounts is the list of categories and subcategories used to organize, identify + track the money moving in and out of your business
WHY IT MATTERS
If the list is cluttered and full of duplicates and errors (or just simply doesn’t fit your business model), your reports will be confusing, incorrect, and unhelpful
If it’s clean and well-organized, it’ll help produce clear reports that will help you make strategic changes – like show you exactly where you’re overspending, or which of your revenue streams are the strongest