I find the standard Chart of Accounts that comes with QuickFile quite confusing. I believe it is the way it is because of historical reasons. But for a small company like mine it is both unclear and overwhelming.
I think the distinction between Expenses and Overheads is not entirely logical. Both do not vary in direct proportion to the level of Sales, which causally distinguishes them from Purchases. Therefore, they both logically belong together as Operating Expenses, rather than separately.
There are simply too many Accounts, especially in Overheads. To me they are just noise. And deleting them does take time, too.
The most logical Chart of Accounts I have found looks like this:
Current assets
1.1. Cash and cash equivalents
1.2. Accounts receivable
1.3. Inventory
1.4. Other current assets
Long term assets
2.1 Property, plant and equipment
Current liabilities
3.1. Accounts payable
3.2. Other current liabilities
Long term liabilities
4.1. Mortgages
4.2. Loans
Equity
5.1. Capital
5.2. Retained earnings
Income
6.1. Revenue
6.2. Other Income
Cost of sales
7.1. Cost of sales
Expense
8.1. Research and development
8.2. Sales and marketing
8.3. General and administrative
8.3 Depreciation
8.5. Finance costs
8.6. Income tax expense
I really like the division of Expenses into the functions of a company. This makes logical sense and does away with arbitrary classifications. E.g., a Hotel expense can
be a project-related one (and therefore belong to Cost of Sales),
result from an industry conference (Reseach and Development),
be related to a marketing event (Sales and Marketing category is most natural in this case).
I understand there are legal requirements to capture certain kind of information in a Chart of Accounts but wouldn’t it be possible to include a default CoA somewhat like the one above?
I don’t know what the requirements are in terms of what nominals have to be available, but they are easily customisable to suit most businesses, especially with the above option
@Parker1090 thank you for sharing this shortcut. It certainly makes things easier.
However, the bigger issue here is that the ‘shrink-to-fit’ approach of starting with a very detailed Chart of Accounts is, IMHO, not a good idea. It promotes looking at irrelevant things and hides the forest behind the trees.
Why not start with a lean, logical CoA and expand it only when pressed by absolute necessity — as per the ‘less is more’ adage. Simply, there’s no reason to collect information that doesn’t affect decision making, is there?
The COA format we have adopted is based loosely on Sage and other traditional accounting applications. The codes are familiar to many accountants/bookkeepers.
Throwing out the COA and replacing it with something entirely new is not an option for us, namely because we have 1000s of accounts that have already completed accounting periods and many users are already accustomed to this particular COA. Further more a great deal of the logic in QF will group transactions by code range.
Arguably we could load a much more compact version of the COA for new accounts, although we’d still need to stick with the basic numbering/naming conventions, along with the categories we already have.
Not necessarily on this system but on others if you give the user a small list of codes then they will not add new ones and you end up with a lot in one code, which when it comes to year end accounts needs analysing out.
Codes should really be set and relevant to iXbrl tagging codes - that way they can be matched directly into accounts production software.
