Dipan Kumar Rout

Living life between backspaces.

ERP Basic: Chart of Accounts

Although the topic itself might sound very naive to the core accounting folks but still there’s very little information available on the web when it comes to some of best practices for ERP implementation. I have been an ERP implementation specialist for the past 14 years of my career. I’ve decided to write a series of articles that will try to give very generic approach to this topic. There are no right or wrong ways and the below is an attempt to describe what’s best when it comes to configuring your books.

Designing a good Chart of Accounts is a work of art more than science. The tendency we often see is that users want to build more complexity into their Chart of Accounts than is needed. For the sake of simplicity, lets refer to Chart of Accounts as COA, henceforth in this article. As a good practice, always plan out your COA in excel, where you can always update, insert and move GL accounts while in the planning phase.

Ordering the GL Accounts

While there are no set rules, below is one of the best practices that I adopt while trying to order and name the GL accounts.

  • Assign 1 series for Assets
  • Assign 2 series for Liabilities
  • Assign 3 series for Equity
  • Assign 4 series for Revenue
  • Assign 5 series for Cost of Goods Sold
  • Assign 6,7,8 series Expenses
  • Assign 9 series Other Incomes and Expenses

1— Assets will typically begin with “1” and are ordered by liquidity. The less liquid the asset the higher the GL account number. Below is a typical order of liquidity for assets with some example GL accounts:

  • Cash (Example: 1010-Cash Savings Bank of America)
  • Accounts Receivable (Example: 1200-Accounts Receivable)
  • Prepayments (Example: 1400-Prepaid Expenses)
  • Deposits (Example: 1450-Deposits)
  • Inventory (Example: 1500-Inventory)
  • Fixed Assets (Example: 1600-Fixed Assets)
  • Intangible Assets (Example: 1800-Goodwill)

2— Liability accounts begin with “2” and are also ordered by liquidity. The less liquid the liability the higher the GL account number. Most implementers set up credit cards and lines of credit as “Bank” GL accounts.. Below is a typical order of liquidity for liabilities with some example GL accounts:

  • Accounts Payable (Example: 2000-Accounts Payable)
  • Credit Cards (Example: 2010-Chase Credit Card 9176)
  • Lines of Credit (Example: 2020-BOA Line of Credit)
  • Accrued Expenses (Example: 2100-Accrued Expenses)
  • Notes Payable (Example: 2600-Bank Note Payable)
  • Long Term Debt (Example: 2700-Long Term Debt)

3— Equity accounts typically begin with “3”. It is common to just have a few equity accounts as detailed below:

  • Opening Balances (Example: 3000-Opening Balances) : Used for data migration
  • Company Stock (Example: 3010-Issued Stock) : Typically not used for small businesses
  • Contributed Capital (Example: 3020-Owners Contributions) : Owner contributions/distributions
  • Current Year Earnings (Example: 3050-Current Year Earnings) : System account required
  • Retained Earnings (Example: 3060-Retained Earnings) : System account required

4— Revenue accounts typically begin with “4”. (Example: 4000-Product Revenue)

5— Cost of Goods Sold typically begin with “5”. (Example: 5000-Direct Labor)

6, 7, 8— Labor, Sales, Facilities and Marketing often begin with these numbers. This does vary quite a bit by industry. It is best to group all of one category of accounts together. Examples:

  • 6000-Staff Labor
  • 7000-Office Rent
  • 8000-Advertising

9— Other income and expense often begin with “9.”

  • 9000-Realized Gain/Loss on Foreign Currency Exchange
  • 9010-Unrealized Gain/Loss on Foreign Currency Exchange
  • 9500-Interest Income

Example of Sample Balance Sheet

GL Account NameTypeSub-Type 1Sub-Type 2Bank
1000-Cash Bank of America CheckingBalance SheetAssetsCashTRUE
1200-Accounts ReceivableBalance SheetAssetsCurrent Assets
1205-Unapplied AR SuspenseBalance SheetAssetsCurrent Assets
1210-Shareholder ReceivablesBalance SheetAssetsCurrent Assets
1400-Prepaid ExpensesBalance SheetAssetsCurrent Assets
1450-DepositsBalance SheetAssetsCurrent Assets
1500-InventoryBalance SheetAssetsCurrent Assets
1600-Fixed AssetsBalance SheetAssetsFixed Assets
1650-Accumulated DepreciationBalance SheetAssetsFixed Assets
2000-Accounts PayableBalance SheetLiabilitiesCurrent Liabilities
2010-Chase Credit Card (9176)Balance SheetLiabilitiesCurrent LiabilitiesTRUE
2011-BOA Amex (69184)Balance SheetLiabilitiesCurrent LiabilitiesTRUE
2012-Capital One Bill (8165)Balance SheetLiabilitiesCurrent LiabilitiesTRUE
2013-Capital One Susan (0821)Balance SheetLiabilitiesCurrent LiabilitiesTRUE
2014-Chase SouthWest Card (8793)Balance SheetLiabilitiesCurrent LiabilitiesTRUE
2015-Capital One George (9328)Balance SheetLiabilitiesCurrent LiabilitiesTRUE
2020-BOA Line of CreditBalance SheetLiabilitiesCurrent LiabilitiesTRUE
2050-Retirement PayableBalance SheetLiabilitiesCurrent Liabilities
2100-Accrued ExpensesBalance SheetLiabilitiesCurrent Liabilities
2120-Benefit LiabilitiesBalance SheetLiabilitiesCurrent Liabilities
2500-Deferred Product RevenueBalance SheetLiabilitiesCurrent Liabilities
3000-Contributed EquityBalance SheetOwners EquityEquity
3050-Retained EarningsBalance SheetOwners EquityEquity
3060-Current Year IncomeBalance SheetOwners EquityEquity

Example of Sample Revenue

GL Account NameTypeSub Type 1
4000-Product RevenueRevenueProduct Revenue
4005-Partner Product RevenueRevenueProduct Revenue
4010-Service RevenueRevenueService Revenue
4200-Reimbursed TravelRevenueService Revenue

Example of Sample Expense

GL Account NameTypeSub Type 1
4900-Partner Sales CommissionExpenseCost of Goods Sold
4910-Merchant Bank FeesExpenseCost of Goods Sold
5000-Staff SalaryExpenseLabor
5050-Staff Benefits & TaxesExpenseLabor
5075-Staff Variable PayExpenseLabor
5100-Contract LaborExpenseLabor
5300-Training & EducationExpenseLabor
5800-Travel ExpensesExpenseTravel
5810-Staff Meals and EventsExpenseTravel
5820-Non-Staff Meals & EntExpenseTravel
5822-Travel MealsExpenseTravel
5830-Vehicle ExpenseExpenseTravel
5840-Depreciation ExpenseExpenseFacilities
6000-Office Rent and UtilitiesExpenseFacilities
6005-Office SuppliesExpenseFacilities
6100-Office EquipmentExpenseFacilities
6150-Office FurnitureExpenseFacilities
6500-Software LicensesExpenseFacilities
6700-Office Repairs & MaintExpenseFacilities
6800-Leasehold ImprovementsExpenseFacilities
8000-Events and TradeshowsExpenseSales & Marketing
8050-Graphics ProductionExpenseSales & Marketing
8075-Marketing GiftsExpenseSales & Marketing
8200-Public Relations & PromotionExpenseSales & Marketing
8300-AdvertisingExpenseSales & Marketing
8400-Partner Referral FeesExpenseSales & Marketing
9200-Legal & ProfessionalExpenseGeneral & Administrative
9210-Workers Compensation InsExpenseGeneral & Administrative
9300-Commercial Bank FeesExpenseGeneral & Administrative
9320-Interest ExpenseExpenseGeneral & Administrative
9500-Charitable ContributionsExpenseGeneral & Administrative
9600-Corporate TaxesExpenseGeneral & Administrative

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