One of the benefits of using an accounting system is that it summarises your various types of economic activity. For example, you can see at a glance what your total sales are, or how much you spent on advertising.
However for this to work, you need to establish a coding scheme that categorises the various types of activity that are important to you. Each code that you create is called a general ledger account1, and all of your general ledger accounts constitute your chart of accounts,
Whenever you enter a transaction into MoneyWorks, you specify what account codes the transaction will be affecting, and by how much each account will be affected. It follows then that the structuring of your chart of accounts is very important as it determines what level of information can be extracted from your accounts. Too few accounts, and you may not be able to determine in enough detail just where your money went (or came from). On the other hand if you have too many accounts, you may be swamped in detail and unable to see the forest for the trees.
With MoneyWorks your account structure can be as simple or as complicated as you require. MoneyWorks codes can be numeric or alpha-numeric. Most of the reports that come with MoneyWorks will work no matter what account codes you use, and will continue to work as you add and delete accounts. Finally, if you are using MoneyWorks Gold, an account can be broken down further into departments (or, if you are an accountant, into subledgers) for finer level of detail.
Unlike other systems, MoneyWorks does not limit your reporting to the structure of your chart of accounts. This means that there are no complex “Header Accounts” or “Transfer To” accounts. Instead, you can have whatever coding structure you like, and know that it will work with the standard MoneyWorks reports.
In addition, you can alter the chart of accounts at any time. This means that you can add or remove account codes, and basically reconfigure your accounts as you get more experience.
Simple Chart of Accounts
As an example of a chart of accounts, consider the following:
|40||Accounts Receivable* (Not Cashbook)|
|50||Accounts Payable* (Not Cashbook)|
|90||Profit & Loss*|
This is about as simple as you can get — MoneyWorks requires the presence of accounts marked with *. If you use this you will be able to determine your profitability, do your GST, and (if you are using MoneyWorks Express of Gold) know how much you are owed and how much you owe.
However for most businesses it would be inadequate because all the income and expenses are lumped together, so you can’t see how it was derived. It would be more sensible to look at the type of income and expenses that is important to the business and have codes for these. Thus instead of a single expense code we might have:
|20||Salaries & Wages|
We can then see at a glance how much was paid out in wages, or how much it cost to run the office. But again there is not much level of detail — for example, we can’t determine how much the telephones cost to run, or how much was spent on stationery. This may not be a problem, as we may never be interested in this information. However if we were, we would need to go to a finer level of detail.
It is possible of course to go too far and make things too complicated. If you find that you are agonising over whether an expense should be put under the “Pencils Expenses” code or the “Pens Expenses” code, then you probably have too many codes.
1 Or, in the UK, a Nominal Ledger account ↩