You will often hear your Accountant, or more likely your bookkeeper, speak about a “Chart of Accounts” or “General Ledger” which stores all of your business transactions in much the same way that the cupboards, shelves and draws in your kitchen are used to store the pots, pans and ingredients for the family’s meals. The design of this storage area is very important if you want to be able to get quick access to items which in turn avoids delays or even worse the wrong item for the desired activity.

Let me illustrate this by comparing the systems often utilised in a kitchen versus the garage. In the kitchen cutlery is often placed in a draw after the washing up (well hopefully it is), which in turn houses a cutlery tray or tidy immediately after they are dried, either that or they are left in the dishwasher in a similar container that keeps each utensil organised in its own group. Now let’s move our attention to the garage bench where often tools are left where we last used them and nuts, bolts and washers are all thrown together in the one box. The time wasted in looking for the right tool or bolt in the garage compared to the ease at which we can locate a knife or fork before a meal shows the benefit of having an organized system where you can easy select the right object when it’s required.

The same applies to an accounting system where a properly planned and organised chart of accounts, which describes how you receive income like Services Revenue, Software Sales, or how you record expenses like Costs of Sales or Operating Expenses makes the processing of capturing financial transactions and the resulting reports far more meaningful. An accounting application helps you intuitively put these transactions in the right chart of accounts with the right GST codes. A bit like having labels on your kitchen drawers that tell people where the knives belong.

Adoption of accounting software is cheap with online applications like Reach Accounting meaning every business can now afford an online system that organises their financial information. And if you need help configuring how you should best set up your chart of accounts, talk to a local bookkeeper, which is a vast improvement to leaving everything until the last minute or, even worse not recording important financial information at all.

Bookkeeping Commentary by John Birse – Owner of Jim’s Bookkeeping and Fellow with Institute of Certified Bookkeepers.

John Birse, CEO of Jim’s Bookkeeping, wrote this article for Netregistry. John is actively involved in developing the bookkeeping industry through his involvement as a Directory of the Institute of Certified Bookkeepers.

Reach Accounting is a hosted application that gives a small business owner the tools to manage their bookkeeping and payroll services, saving significantly on bookkeeping fees and internal costs. Get a free 30 day trial today.