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I. Getting Started > 2. Setting Up a Chart of Accounts

Chapter 2. Setting Up a Chart of Accounts

If you’ve just begun to run a business or keep books, all this talk of credits, debits, and accounts could have you flummoxed. Accounting is the cross between mathematics and black arts that records and reports the performance of an organization. The end result of bookkeeping and accounting is a set of financial statements (page 371), but the starting point is the Chart of Accounts.

In accounting, an account is like a bucket of money. When you earn money, you document those earnings in an income account. When you buy supplies for your business, that expense shows up in an expense account. If you buy a building, its value ends up in an asset account. Accounts come in a variety of types to reflect whether you’ve earned or spent money, whether you own something or owe money to someone else, plus a few other financial situations. The Chart of Accounts isn’t actually a chart; it’s a list of all the accounts you use to track money in your business.


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