What does the CA say?
Maintain Chart of Accounts right from the early stage of the venture.
Is Chart of Accounts really important?
A company’s Chart of Accounts is a view of all Asset, Liability, Equity, Revenue, and Expense accounts included in the company’s General Ledger. The number of accounts included in the chart of accounts varies depending on the size of the company. Designing a COA is one of the first tasks that have to be performed when setting up a budgeting and its associated accounting and financial reporting systems.
The Chart of Accounts (COA) although appears to be just concerned with classifying and recording financial transactions, is critical for effective budget management, including tracking and reporting on budget execution. A mistake in designing the Chart of Accounts could have a long-lasting impact on the ability of the system to provide required financial information for key decisions. Remember, COA is also the hub of any computerized accounting and reporting system.
How does maintaining Chart of Accounts benefit the firm?
- The COA specifies how the financial transactions are recorded in a series of accounts that are required to be maintained to support the needs of various users/stakeholders.
- The COA provides a coding structure for the classification and recording of relevant financial information within the financial management and reporting system.
- The COA provides room for planning, controlling and reporting of budgetary allocations as well as internal management needs of budget units and/or cost centers.
How is Chart of Accounts designed?
COA can be designed by anyone who is aware of the nuances of accounting, but the difference that an experienced professional brings in is productivity and quality. It is a known fact that startups, most of them, lack the management bandwidth and expertise to carry out COA related works.
The development and implementation of a COA should involve the following key steps:
- The COA can only be properly configured after a comprehensive business needs analysis has been undertaken
- The COA segments and the hierarchical levels within each segment should be defined.
- The COA and its segments should use basic logic and account definition
- Creating a global or a unified COA establishes a foundation for consistency in terminology and serves to eliminate redundant accounts
- Define clear institutional, legal and procedural frameworks to prevent the COA structure from becoming fragmented.
- For the COA to achieve its desired impact of facilitating improved budget management and financial reporting, all users should be adequately trained.
- An effective change management strategy also needs to be developed to implement the new COA and associated reforms in the accounting and reporting system
Wazzeer Professional Network is built on qualified CAs, CSs, and Lawyers who work with startups in understanding and delivering various compliance works seamlessly. We would be happy to work with you getting this organized and compliant. Let’s connect -> “Get your Wazzeer”