Setting up a Chart of Accounts involves some decisions. You will need to have accounts in five categories:
- Assets
Assets are those items the business owns and which have value. Assets can include cash, accounts receivable (amounts owed to your business by customers), inventory, supplies, and equipment.
- Liabilities
Liabilities are amounts owed by your business. Liabilities include loans and items payable, like taxes and payroll taxes.
- Expenses
Expenses are amounts you pay for charges, like rent, utilities, phone, advertising, and bank charges.
- Income
Income is money you bring into the business from sales of products or services.
- Owner's Equity or Retained Earnings Owner's Equity is the portion of the business owned by the owner, after income is collected and expenses have been paid. Retained Earnings is the same ownership, for a corporation.
