140 lines
6.0 KiB
Markdown
140 lines
6.0 KiB
Markdown
# Chart Of Accounts
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The Chart of Accounts forms the blueprint of your organization. The overall
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structure of your Chart of Accounts is based on a system of double entry
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accounting that has become a standard all over the world to quantify how a
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company is doing financially.
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The Chart of Accounts helps you to answer:
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* What is your organisation worth?
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* How much debt have you taken?
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* How much profit are you making (and hence paying tax)?
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* How much are you selling?
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* What is your expense break-up
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You may note that as a business manager, it is very valuable to see how well
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your business is doing.
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> Tip: If you can’t read a Balance Sheet (It took me a long time to
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figure this out) it's a good opportunity to start learning about this. It will
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be worth the effort. You can also take the help of your accountant to setup
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your Chart of Accounts.
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Financial statements for your company are easily viewable in ERPNext. You can view financial statements
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such as Balance Sheet, Profit and Loss statement and Cash flow statement.
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An Example of various financial statement are given below:
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#### Cash Flow Report
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<img class="screenshot" alt="Cash Flow Report" src="/docs/assets/img/accounts/cash_flow_report.png">
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#### Profit and Loss Report
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<img class="screenshot" alt="Profit and Loss Report" src="/docs/assets/img/accounts/profit_n_loss_report.png">
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#### Balance Sheet Report
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<img class="screenshot" alt="Balance Sheet Report" src="/docs/assets/img/accounts/balance_sheet_report.png">
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To edit your Chart of Accounts in ERPNext go to:
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> Accounts > Setup > Chart of Accounts
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Chart of Accounts is a tree view of the names of the Accounts (Ledgers and
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Groups) that a Company requires to manage its books of accounts. ERPNext sets
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up a simple chart of accounts for each Company you create, but you have to
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modify it according to your needs and legal requirements. For each company,
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Chart of Accounts signifies the way to classify the accounting entries, mostly
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based on statutory (tax, compliance to government regulations) requirements.
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Let us understand the main groups of the Chart of Accounts.
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<img class="screenshot" alt="Chart of Accounts" src="/docs/assets/img/accounts/chart-of-accounts-1.png">
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### Balance Sheet Accounts
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The Balance Sheet has Application of Funds (/assets) and Sources of Funds
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(Liabilities) that signify the net-worth of your company at any given time.
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When you begin or end a financial period, all the Assets are equal to the
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Liabilities.
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> Accounting: If you are new to accounting, you might be wondering, how can
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Assets be equal to Liabilities? That would mean the company has nothing of its
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own. Thats right. All the “investment” made in the company to buy assets (like
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land, furniture, machines) is made by the owners and is a liability to the
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company. If the company would want to shut down, it would need to sell all the
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assets and pay back all the liabilities (including profits) to the owners,
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leaving itself with nothing.
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All the accounts under this represent an asset owned by the company like "Bank
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Account", "Land and Property", "Furniture" or a liability (funds that the
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company owes to others) like "Owners funds", "Debt" etc.
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Two special accounts to note here are Accounts Receivable (money you have to
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collect from your customers) and Accounts Payable (money you have to pay to
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your suppliers) under Assets and Liabilities respectively.
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### Profit and Loss Accounts
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Profit and Loss is the group of Income and Expense accounts that represent
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your accounting transactions over a period.
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Unlike Balance sheet accounts, Profit and Loss accounts (or PL accounts) do
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not represent net worth (/assets), but rather represent the amount of money
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spent and collected in servicing customers during the period. Hence at the
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beginning and end of your Fiscal Year, they become zero.
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In ERPNext it is easy to create a Profit and Loss analysis chart. An example
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of a Profit and Loss analysis chart is given below:
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<img class="screenshot" alt="Financial Analytics Profit and Loss Statement" src="/docs/assets/img/accounts/financial-analytics-pl.png">
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(On the first day of the year you have not made any profit or loss, but you
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still have assets, hence balance sheet accounts never become zero at the
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beginning or end of a period)
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### Groups and Ledgers
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There are two main kinds of Accounts in ERPNext - Group and Ledger. Groups can
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have sub-groups and ledgers within them, whereas ledgers are the leaf nodes of
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your chart and cannot be further classified.
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Accounting Transactions can only be made against Ledger Accounts (not Groups)
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> Info: The term "Ledger" means a page in an accounting book where entries are
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made. There is usually one ledger for each account (like a Customer or a
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Supplier).
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> Note: An Account “Ledger” is also sometimes called as Account “Head”.
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<img class="screenshot" alt="Chart of Accounts" src="/docs/assets/img/accounts/chart-of-accounts-2.png">
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### Other Account Types
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In ERPNext, you can also specify more information when you create a new
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Account, this is there to help you select that particular account in a
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scenario like Bank Account or a Tax Account and has no effect on the Chart
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itself.
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### Creating / Editing Accounts
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To create new Accounts, explore your Chart of Accounts and click on an Account
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group under which you want to create the new Account. On the right side, you
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will see an option to “Open” or “Add Child” a new Account.
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<img class="screenshot" alt="Chart of Accounts" src="/docs/assets/img/accounts/chart-of-accounts-3.png">
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Option to create will only appear if you click on a Group (folder) type
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Account.
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ERPNext creates a standard structure for you when the Company is created but
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it is up to you to modify or add or remove accounts.
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Typically, you might want to create Accounts for
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* Types of Expenses (travel, salaries, telephone etc) under Expenses.
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* Taxes (VAT, Sales Tax etc based on your country) under Current Liabilities.
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* Types of Sales (for example, Product Sales, Service Sales etc.) under Income.
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* Types of Assets (building, machinery, furniture etc.) under Fixed Assets.
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{next}
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