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Chart of Accounts Explained: Bookkeeping Made Simple

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COA Image on Laptop

Every business has one. Whether you’re a solo entrepreneur, a nonprofit leader, or running a growing company with a small team, your Chart of Accounts is quietly working behind the scenes, keeping your books in order.

But what exactly is it? And why does it matter so much?

Let’s break it down in simple terms.

What Is the Chart of Accounts?

Your Chart of Accounts (or COA for short) is the foundation of your bookkeeping system. Think of it like a financial filing cabinet. Every dollar that comes in or goes out needs to be sorted into the right drawer. Those drawers are your accounts.

You won’t see the COA every day, but it’s working in the background every time you record a transaction, run a report, or prepare for tax season. Without a well-structured COA, your financial records can quickly become disorganized or unclear.

What’s Included in a Chart of Accounts?

Most COAs are broken into five main categories:

 Assets – What You Own

This includes your bank accounts, inventory, equipment, vehicles, and anything else your business owns that has value.

Liabilities – What You Owe

Loans, credit card balances, and unpaid bills live under liabilities.

Equity – Your Ownership

This section tracks owner investments, draws, retained earnings, and net income.

Income (Revenue) – What You Earn

Sales, service fees, rental income, donations, however your business or nonprofit brings in money.

Expenses – What You Spend

From office supplies to payroll to utilities, expenses show where your money is going.

Each category contains specific accounts tailored to your business. For example, a real estate investor might track “Property Taxes” and “Maintenance,” while a nonprofit might track “Program Expenses” and “Fundraising Costs.”

In addition to the five main categories, you may also see:

  • Cost of Goods Sold (COGS) – This tracks the direct costs of producing goods or delivering services, such as materials or subcontractor labor. Not every business uses COGS. For example, service-based businesses may not need it.
  • Other Income – Income that isn’t part of your day-to-day operations, like interest earned or one-time gains.
  • Other Expense – Unusual or infrequent expenses that fall outside normal business operations, such as a loss on asset disposal.

Not all industries will use these additional categories, but they can be helpful for businesses with more complex financial activity.

Why It Matters

A good COA helps you:

  • See where your money is coming from and where it’s going
  • Stay prepared for tax time
  • Run accurate reports like Profit & Loss or Balance Sheet
  • Make better financial decisions
  • Stay compliant with donors, board members, or regulatory requirements

If your books have ever felt confusing or incomplete, there’s a good chance the problem starts with how your Chart of Accounts is set up.

Tips for a Cleaner, Smarter Chart of Accounts

You don’t need a long, complicated list of accounts. In fact, simple is better. As long as it still meets your reporting needs.

Here are a few practical tips:

  • Keep it streamlined. Too many accounts can overwhelm your reports and make reconciliation harder.
  • Use account numbers. This makes sorting and reporting easier in your accounting system.
  • Stick with consistent naming. “Office Supplies” and “Supplies–Office” might seem similar, but inconsistency creates confusion.
  • Tailor it to your business. Service-based businesses, nonprofits, and rental property owners each need different setups. One size doesn’t fit all.

When Should You Review or Update It?

Even if your COA was set up correctly years ago, it might not be serving you well today.

Here are some good times to revisit it:

  • At the start of a new fiscal year
  • When changing your business model or service offerings
  • Before switching accountants or software
  • When applying for a grant, loan, or funding that requires clean reporting

A little maintenance goes a long way in keeping your books clear and reliable.

Final Thoughts

The Chart of Accounts may not be flashy, but it’s one of the most important parts of your financial system. When it’s done right, everything else, from budgeting to compliance gets easier.

If your COA feels too messy, too long, or just doesn’t reflect how your business works today, it might be time for a fresh look.

Need Help?

We help businesses clean up and customize their Chart of Accounts, so their books are clearer, reports are easier to read, and tax season runs more smoothly.

Let’s simplify your bookkeeping together. Contact us today to get started!

Assets and Liabilities Made Simple: A Guide for Small Business Owners

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Scale_Assets vs Liabilities

Most business owners spend a lot of time looking at their Profit & Loss Statement—it’s familiar, tracks income and expenses, and speaks the same language you probably use daily. However, another financial report is just as important: the Balance Sheet.

The Balance Sheet can feel less approachable. It uses terms like “assets” and “liabilities,” which might not come up in your regular conversations. But once you get the hang of it, this snapshot of your business’s finances can give you powerful insight into how your business is doing.

Let’s focus on one of the most important things the balance sheet tells you: the difference between assets and liabilities—and why that difference matters.

What Are Assets?

Assets are everything your business owns that has value. Such as tools, resources, and items that help you run your business, generate income, or hold long-term value. Some are physical, others are not—but they all count as part of what your business “has.”

Examples of assets:

  • Cash – Money in your business accounts or on hand
  • Accounts Receivable – Payments owed to you by customers
  • Inventory – Products you plan to sell
  • Equipment and tools – Computers, vehicles, machinery, etc.
  • Property – Buildings or land owned by your business
  • Intangible assets – Things like trademarks, copyrights, and brand value

Assets are usually grouped by how quickly they can be converted into cash:

  • Current Assets – Cash, inventory, receivables—anything you can expect to use or convert within a year
  • Non-Current Assets – Equipment, property, or anything that will last longer than a year

What Are Liabilities?

Liabilities are what your business owes. These are debts or financial obligations—money that needs to be paid to lenders, vendors, or agencies. It’s never fun to think about what your business owes, but having a clear picture of those obligations can help you manage your cash flow.

Examples of liabilities:

  • Loans – Business loans or lines of credit
  • Accounts Payable – Bills you owe to suppliers or service providers
  • Credit Cards – Any outstanding balances
  • Taxes Payable – Amounts owed to tax authorities
  • Payroll Liabilities – Wages or benefits not yet paid

Like assets, liabilities are also grouped by timeframe:

  • Current Liabilities – Payments due within a year
  • Non-Current Liabilities – Debts that extend beyond a year, like long-term loans or leases

Why It Matters

Understanding the difference between what you own (assets) and what you owe (liabilities) helps determine whether your business is on solid ground or heading for trouble.

Here’s why this matters:

  • It shows your business’s stability. You’re in a good position when your assets are greater than your liabilities. That typically means you have enough breathing room to cover your debts and still operate smoothly.
  • It affects your ability to borrow. Banks and lenders consider your assets and liabilities when deciding whether to extend credit.
  • It helps you plan ahead. If liabilities are climbing and assets aren’t keeping pace, that’s a red flag. You may need to adjust spending, pricing, or collection efforts.
  • It tells you your business’s value. When you subtract what you owe from what you own, you’re left with your equity—the part of the business that truly belongs to you.

A Simple Way to Think About It

If you think of your business like a house:

  • Assets are everything inside—cash, furniture, appliances, tools, and the house’s value.
  • Liabilities are the mortgage, credit card bills, and any repairs you still owe money on.

What’s left after subtracting the debts is your equity—which is what you own.

Final Thoughts

The balance sheet might not be your go-to report, but it can tell you a lot about your business’s health—and it starts with understanding what you have vs. what you owe.

Break-Even Point Explained: How to Price for Profit

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Break-Even Point

If you’ve ever wondered, “How much do I need to sell just to cover my bills?”—you’re already thinking about your break-even point.

It’s a simple idea that can change how you run your business. You can price things more confidently when you know exactly how many products or services you need to sell to stop losing money (and start making it).

So, What Is the Break-Even Point?

The break-even point is when your business earns just enough money to cover your expenses.

At that moment, you’re not losing money—but you’re not making a profit yet either. Before you reach break-even, you’re running at a loss.

Once you pass it, every dollar you bring in (beyond expenses) is profit.

Why It’s Worth Knowing

When you know your break-even point, making decisions becomes clearer:

  • You’ll set prices confidently.
  • You’ll know exactly how many products or services to sell each month.
  • You’ll quickly see if a new idea makes financial sense.
  • You can prepare better for slow periods.

No more guessing or worrying because you’ll be working from actual numbers.

Calculating Your Break-Even (Without a Math Headache)

Here’s what you need to gather to make the calculation:

  • Fixed costs are monthly bills no matter how much you sell—rent, salaries, subscriptions.
  • Variable costs can change depending on how much you sell. Think supplies, packaging, or hourly contractor work.
  • Your selling price is what you charge your customers.
  • Your cost per sale is what it costs to make or deliver a sale.

Example: A Coffee Shop

Let’s say you own a neighborhood coffee shop. Each cup of coffee sells for $5. It costs you about $2 to make each cup (beans, milk, cups, etc.).

So, your profit per cup is $3.

Now, let’s say your fixed monthly costs—things like rent, staff pay, and utilities—total $4,000.

Break-even = $4,000 ÷ $3 = about 1,334 cups

That means you need to sell 1,334 cups of coffee a month to cover your costs. Anything above that? That’s where the real profit starts.

How This Helps with Pricing

Let’s say you’re only selling 1,000 cups of coffee a month. That means you’re not hitting your break-even point, and you’re probably losing money.

But now that you know the numbers, you can ask questions like:

  • Should I raise my prices a little?
  • Can I lower my supply costs?
  • Can I increase the number of cups I sell?

You’re not guessing anymore—you’re making decisions with real data.

Keeping Your Costs in Check

This is where knowing the break-even point helps business owners. If your sales dip or your costs creep up, you’ll feel it. But when you’re tracking your break-even regularly, you can spot problems early and adjust.

Common Pitfalls to Avoid

  • Underestimating variable costs: Even small expenses add up, so always track them.
  • Setting prices too low: Knowing your break-even helps prevent pricing yourself out of profit.
  • Not updating regularly: Revisit your break-even point whenever your costs or prices change.

Break-Even Takeaways

  • Your break-even point tells you how many sales you need to not lose money.
  • It helps you price smarter, spend wiser, and make more informed choices.
  • It’s easy to calculate once you know your numbers.

Now that we have removed the mystery of the break-even point and walked you through calculating it, you can take greater control of your ability to be profitable.

And that’s what the break-even point is all about!

How to Set Up a Bookkeeping Cycle in QuickBooks Online

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Do you have a regular schedule you follow with your QuickBooks Online work?

Whether you’re a new QuickBooks Online user or a long-time user, having a regular accounting routine can make you more productive and confident that you’re addressing all of your accounting issues.

What Should You Do Every Day?

Even if you don’t have expenses to enter or invoices to process, it’s a good idea to log into
QuickBooks Online every day. If you’ve connected your online bank and credit cards to the
site (which you absolutely should), there will probably be transactions to go over. So after
you’ve taken a look at your Dashboard (especially your Tasks), hover your mouse over
Transactions in the toolbar and click Bank Transactions.

Click Update in the upper right to make sure you’re seeing the most recent transactions. If
you’re doing this every day, it shouldn’t take long to go over the income and expenses that
have been imported since you last logged in.

You should be looking at newly imported transactions daily and completing the fields
provided as comprehensively as possible.

If you don’t know what Match or Record as transfer mean, we should schedule a session
to go over how those work to avoid duplicate transactions in QuickBooks Online.

Every Week

You need to be monitoring your accounts receivable and payables on a weekly basis – at
minimum. There are two ways to do this. You can:

Run reports

  • Click Reports in the toolbar and scroll down first to Who owes you. Run Accounts receivable aging summary. QuickBooks will display past-due transactions in several columns (Current, 1-30 days, 31-60 days, 61-90 days, and 91 and over). If you’re keeping up with your receivables, you shouldn’t be seeing numbers in most of the columns, unless you’re in a known collections process.
  • Scroll down to What you owe and run Accounts payable aging summary. This works like the aging receivables report. Again, you shouldn’t be seeing much activity here unless you’re in a payment dispute with a vendor.
  • You can also run the Open Invoices report to quickly see the Due date and Open balance entries here. Ditto the Unpaid Bills report.

Consult the All Sales page

Hover your mouse over Sales in the toolbar and click All Sales. The colored bars and
numbers at the top of the page show you the status of your sales. Click the orange bar in
the middle to see a list of overdue invoices. If there are any, you can set a Send
Reminder by clicking the corresponding down arrow in the Action column. While you’re
there, look at estimates and unbilled income and take any action needed.

Every Two Weeks (or more often, depending on product volume) If you sell products and track inventory in QuickBooks Online, you should keep a close eye on your stock to see if you need to:

  • Reorder,
  • Bring in a larger supply because something is selling well, or,
  • Discount or discontinue a product because it’s not selling.

Click Reports in the toolbar and run Product/Service List under Sales and Customers
and look at the Quantity on Hand column.

Every Month

Reconcile your accounts (Transactions | Reconcile)

It’s really important that you reconcile your accounts every month.

No one likes to do this, but it’s way easier to do regular reconciliations than it is to have to
go back several months to track down a problem. If you’ve never done this in QuickBooks
Online, it works similarly to how you used to reconcile your accounts by comparing a bank
statement and your paper checkbook register. Only you’re comparing your bank or credit
card statements to your accounts in QuickBooks Online. Before you start, make sure
you’ve matched and categorized all of your downloaded transactions.

Run a Profit and Loss report for the last month

Click Reports in the toolbar and click Profit and Loss under Business Overview. Did
you make a profit last month?

Every Quarter

If you’re planning to apply for a loan or looking for an investor, or if you just want a deeper
understanding of how your business is doing, consider having us create and analyze
standard financial reports for you, like the Balance Sheet and Statement of Cash Flows.

Lastly, If you ever have trouble categorizing an expense, select Ask My Accountant as the
Category. If we’re meeting with you once a month, we can run a report on these and help
you categorize them correctly.

Give the above a try, review your results, and adjust the schedule as necessary to ensure all your accounting tasks are completed.

A Beginner’s Guide to Understanding the Balance Sheet

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Business owners tend to focus on the Profit and Loss Statement as it shows the income and expenses flowing through their business. Also, the categories (accounts) on the Profit and Loss Statement are terms they tend to use in their day-to-day business dealings.

The Balance Sheet however, uses accounting terms that might not be used on a daily basis and therefore, can be a little intimidating. If that’s how you feel, you’re not alone as We hear regularly from business owners, that they don’t fully understand the balance sheet. This article will breakdown the terms you might find on a balance sheet.

What Is a Balance Sheet?

Think of a balance sheet like a snapshot of your finances. It shows what a business owns (assets), what it owes (liabilities), and what’s left over for the owners (equity). This snapshot helps business owners, investors, and lenders understand how the business is doing financially.

The balance sheet follows a basic formula:

Assets = Liabilities + Equity

This equation is called the accounting equation, and it always stays in balance (hence the name “balance sheet”). Let’s explore each part of the equation.

Assets: What the Business Owns

Assets are all the things a business owns that have value. These can be physical items (tangible) or things that aren’t tangible (items that aren’t physical but have value). Here are some examples:

Tangible:

  • Cash: Money in the bank or on hand.
  • Accounts Receivable: Money customers owe the business.
  • Inventory: Products the business plans to sell.
  • Equipment: Tools, machinery, or computers used in the business.
  • Property: Land or buildings owned by the business.

Intangible:

  • Intellectual property: Patents, trademarks, copyrights.
  • Goodwill: Value from customer loyalty, public reputation.
  • Brand recognition: Logos, taglines, etc.

Assets are usually divided into two categories:

  • Current Assets: Items the business can turn into cash quickly, usually within a year (like cash or inventory).
  • Non-Current Assets: Items the business plans to use longer than a year (like equipment or property).

Liabilities: What the Business Owes

Liabilities are debts or obligations—money the business owes to others. Here are some common examples:

  • Loans: Money borrowed from a bank or other lender.
  • Accounts Payable: Money owed to suppliers or vendors.
  • Taxes Payable: Taxes the business owes to a government agency.

Like assets, liabilities are divided into two categories:

  • Current Liabilities: Debts that must be paid within a year (like short-term loans or bills).
  • Non-Current Liabilities: Debts that are due over a longer period (like a mortgage).

Equity: What’s Left Over

Equity is the owner’s share of the business. It’s what’s left when you subtract liabilities from assets. In other words:

Equity = Assets – Liabilities

If a business sold everything it owns and paid off all its debts, the remaining money would be the owner’s equity. Examples include:

  • Owner’s Contributions: Money the owner(s) has invested in the business.
  • Retained Earnings: Profits the business has kept rather than paying out to the owner(s).

Why Is the Balance Sheet Important?

A balance sheet is like a report card for your business. It helps answer important questions, such as:

  • Is the business financially healthy? Comparing assets and liabilities can show whether the business has enough resources to cover its debts.
  • How much is the business worth? Equity gives an idea of the business’s value to its owners.
  • Are there any red flags? For example, too much debt compared to assets could signal trouble.

The balance sheet report provides a snapshot of what your business owns (assets), owes (liabilities), and its overall value (equity). We recommend reviewing your balance sheet regularly to monitor the financial health of your business.

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