Each financial statement looks at different types of accounts to get the information it needs.īroadly, your chart of accounts can be broken up into five categories: The chart of accounts and your financial statementsĪs part of regular bookkeeping, you (or your bookkeeper or accountant) draw on information in your general ledger to generate balance sheets and profit and loss (P&L) statements for your business. Likewise, you could see an expense of $2,000 show up in your general ledger, and have no idea whether it was the first month’s rent in your new office, or the money you spent on new office furniture. For instance, your general ledger might show revenue of $120, but without a label on the transaction, you’d have no idea whether that money came from a client, or as royalties on a book you published. If it weren’t for your chart of accounts, those transactions would be mysterious. When you make a loan payment or pay rent for your office, it shows up as an expense. When a client pays you, it shows up as revenue in your general ledger. Your general ledger lists all of your therapy practice’s financial transactions, ordered by date. The chart of accounts and your general ledger While handling day-to-day bookkeeping tasks, like making entries in the general ledger and generating your financial statements, you (or your bookkeeper) refer to your chart of accounts to figure out how income and expenses should be labeled. You can think of the “accounts” in your chart of accounts as financial categories. An example chart of accounts for your private therapy practice.Even if you have a bookkeeper handling it for you, understanding the chart of accounts gives you more insight into how money moves around within your business, and how your therapy practice is doing financially. Understanding the chart of accounts is essential for setting up a bookkeeping system for your private practice. Your therapy practice’s chart of accounts lists all the different ways your business earns and spends money, and tells you how to categorize each transaction.
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