How To Set Up A Chart Of Accounts In MYOB

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My unbiased content is a cumulation of years of small business setups together with the four major accounting firms in Australia. (Not to be replicated, copied or downloaded without permission from the owner first.)
Posted by: Paula Davenport
There are some things in life that haunt your nightmares forever. For me, it's Chucky Doll in Child's Play. For many business owners, it's setting up a chart of accounts.
At first glance, a chart of accounts can be one of the scariest concepts in accounting. Faced with hoards of seemingly random numbers (that give you flashbacks to high school maths), it's no wonder many new business owners become confused.
However, there is a method to the madness. This post explains why this concept is so important and provides detailed, step-by-step instructions to setting up a solid chart of accounts (without having to hire an accountant). I have also included valuable tips from leading experts in the accounting world to make this process as easy as possible.

What Is A Chart Of Accounts?

A chart of accounts is simply a list of all of the account types you might use when recording your business income and expenditure activities. The "account types" include assets, liabilities, equity, income, expenses, other income and other expenses. The accounts are separated like this for reporting purposes and are used to build the balance sheet and the profit and loss report.

Why Do I Need One?

Believe it or not, a chart of accounts isn't just an accountant's idea of a practical joke; it is an incredibly important tool for the financial health of your small business.
A proper chart of accounts lets you track specific business information. Your company probably spends money on multiple expenses (rent, license fees, office supplies, advertising, and so on). A chart of accounts can give you a clear picture of where your money is going and provide you the necessary information to make informed business decisions in the future.
The chart of accounts is also the basis for all accounting reports. Every CPA, CA and BAS Agent will explain to you:
"The accounts that fall into the assets, liabilities and owner's equity will appear on your balance sheet report and the accounts that fall into the income or expense type will appear on your profit and loss statement (or your income statement)."

How Should I Structure My Chart Of Accounts

To do this, you need to know a little bit about each type of account and you need to know your business structure.

ASSETS
Business assets are "capital" items that the business owns. These might include things like bank accounts, cash, computers, vehicles, buildings or land. For bookkeeping purposes, they are separated into sub-accounts depending on how soon they can be converted into cash. The sub-heading include:
- Current Assets
- Non-Current Assets (or Fixed Assets)
- Intangible Assets
Any assets that could be converted into cash within the next 12 months are categorised as "current assets". These could be things like:
- Bank accounts and/or cash
- Short-term investments, like shares or unit trust holdings
- Accounts receivable - all of the money customers owe you
- Inventory - all stock or raw materials held by the business for later on-sale to customers
Any assets owned that cannot be readily converted into cash within 12 months, are popped into the "non-current asset" category. These are things like:
- Land and buildings
- Plant and equipment - new computers, machinery, tools, furniture, etc.
- Motor vehicles - any vehicle owned by the business
- Accumulated deprectiation - the amount the accountant has claimed back in previous tax returns on non-current assets.
Other assets that are not readily converted into cash are known as "intangible assets". These assets can't be seen or touched, hence the intangible part. They include things like:
- Borrowing expenses - banking expenses related to a business loan
- Formulation expenses - expenses related to the setting up of a company
- Goodwill - usually part of the purchase price of a business


LIABILITIES
Liabilities are all of the amounts your business owes to other stakeholders. They can include credit card accounts, supplier bills, GST, PAYG Withholding, Superannuation Guarantee, bank loans, loans from others, loans to buy assets etc.
Liabilities are separated into sub-categories just like the assets.
- Current Liabilities
- Non-Current Liabilities
Current liabilities are those which are due for payment within one year. These can include:
- Credit cards
- Overdrafts
- Accounts payable - money you owe to suppliers
- Other - customer deposits, short-term director loans
- GST
- PAYG Withholding
- Superannuation Guarantee
Non-current liabilites are those items which are not due to be paid within one year and can include:
- Bank loans
- Loans from others - money loaned from family or friends
- Hire purchase or chattel mortgage - often vehicles and office equipment is purchased via these types of loans.
EQUITY
Put simply the result of subtracting liabilities from assets is known as "equity". This is the "interest" a director, shareholder or business owner has in the business. Equity is made up of capital contributed and the profit and loss built up over time.
There are different equity accounts used for each business structure. These are outlined below:
Sole Traders (has it's own Chart Of Accounts)
Partnerships (has it's own Chart Of Accounts)
Companies (has it's own Chart Of Accounts)
Trusts (has it's own Chart Of Accounts)
Sole Traders (has it's own Chart Of Accounts)
Equity accounts for sole traders can include:
- Owner's capital - contributions made by owner
- Owner's drawings - personal spending
- Current year's profit (or loss) - the net profit or loss (taken from the Profit and Loss report).

Partnerships (has it's own Chart Of Accounts)
Equity accounts for a partnership can include:
- Partner's capital - there needs to be one for each partner
- Partner's drawings - again, there should be one for each partner
- Distribution of profit - the accountant writes profit distribution for each partner to this account at the end of the year.

Companies and Trusts (has their own Chart Of Accounts)
The main equity accounts for companies and trusts include:
- Retained earnings - income retained by a company that isn't distributed to shareholders. These earnings or losses build up from one year to the next.
- Current year's earnings.
- Dividends paid - if shareholder received a profit distribution, this payment is recorded here. For trusts, this account is known as "Trust Distributions Paid".
- Shareholder capital - this is the value of all shares issued. This is known as "Issued Ordinary Units" in a trust structure.