Chart of Accounts – that’s accounting speak for your handmade business for the way that CPA’s, tax professionals and business advisers organize financial data about your company. They use a Chart of Accounts much like we use a plastic storage organizer to organize our crafting supplies.
Now, technically speaking (according to General Bookkeeping and Accounting practices); each item on your Chart of Accounts should have it’s own unique identifying Account Number (and page in your General Ledger book). And, depending on the “type” of account, that number should fall into a specific numbering sequence.
A Chart of Accounts has a specific number system:
- 10000-19999 Assets – things your handmade business owns
- 20000-29999 Liabilities – money your handmade business owes
- 30000-39999 Equity – the difference between what you have (your Assets) minus what you owe (your Liabilities) plus money you’ve put into your business and profits the business has made MINUS money you’ve taken out of the business –
- 40000-49999 Income (Revenue) – money you’ve received from the sale of your handmade items
- 50000-59999 Cost of Goods Sold – all of the costs involved in making your handmade items
- 60000-69999 Overhead Expenses – money you’ve spent to run your business that do not involved make finished items
- 70000-79999 Other Income – money that you’ve earned that is not from selling your handcrafted items
- 80000-89999 Other Expenses – expenses that are outside of your normal business operations
If we go back to our “big book” example from last week your General Ledger would have a page (or a worksheet) for your:
- 10000 Checking Account (an Asset) where you would list dollar amounts that you deposited and spent
- 40001 Etsy Sales (Income or Revenue) where you tracked just income from Etsy Sales
- 40002 Craft Fair Sales (Income or Revenue) where you tracked just income you made from Craft Fairs
- 40003 Ravelry Sales (Income or Revenue) where you track just income you made from Ravelry Sales
- 13000 Yarn Purchases (Inventory and an Asset) to keep track of the value of your always growing stash
- 69000 Website hosting (Overhead Expenses)
If you use a paper General Ledger or use a huge Excel/Google Sheets Workbook with different sheets for each account – that’s a LOT of updating and formula’s that you have to create. Accounting software makes managing the bookkeeping for your handmade business so much easier, in fact you can have just one single income account and use other features to track where your sales come from – but that’s for a later post.
That’s it for this week, next week we’ll discuss Assets and what they are.