Hi everyone and welcome back to another FUN segment of Decoding Accounting Terms! This time we will be going over your Chart of Accounts (CoA). There are several different accounts—which might be overwhelming or confusing to most—and this can lead to the account being used improperly or not at all. We’re going to go over the asset accounts today to clear things up.
Before we get started, I want to clarify that the Chart of Accounts is the list of accounts used in your general ledger. This is completely different from bank accounts. These accounts include Assets, Liabilities, Expense etc.
When you first start Kashoo, your Chart of Accounts will have pre-set accounts all ready for you. You may choose to use the ones given or modify/create your own—the choice is yours.
First on the list is Cash which is relatively straight forward. This account is used when you’re using physical cash for a transaction. Whether it be you’re paying a bill or receiving a payment, you use this account if cash is going from one person to another. As a result, your balance will be all the cash you have on hand until you deposit it into a bank or use it towards expenses.
Next up is the Bank Account, where you should be depositing all your money. (If you’re not, I hope it’s not being tucked away under your mattress.) When you receive an income payment, it should be deposited into your business bank account. Make sure that you have your business and personal accounts separated! It’s good practice to keep those two accounts separate to avoid confusion when you are reconciling your bank account. Bank reconciliation is something else you should be doing periodically—and if you’re not, stay tuned… HINT HINT.
Undeposited Funds Account
This next account—Undeposited Funds—may sometimes be overlooked, and as a result, not used. This account is used for funds (whether cash or cheques) that you have received but haven’t deposited into your bank account. For example, when you receive a payment from a client, this can go into the Undeposited Funds account. This is most useful if you have multiple cheques in one deposit transaction.
I also want to briefly talk about the Inventory account, even though it is not the focal point of this article. The Inventory account is there to help you track the inventory you have on hand. If you are currently tracking inventory, you already know Kashoo does not have a built-in feature to do so, however, there are two methods that allow you to use Kashoo to get the job done.
Fixed Asset Account
“Hey Mike! What’s the Furniture & Equipment account for?” I’m glad you asked. This account, also known as the Fixed Asset accounts, refers to furniture and equipment purchased for long term use for your business (so no, not your bed or couch at home, but nice try). These assets lose their value over time (depreciate) which gives you the opportunity to expense them (amortize).
Pre-Paid Expense Account
Last but not least, we have Pre-Paid Expense. Wait what? Yes, the Pre-Paid Expense account is an asset account (told you accounting terms can confusing sometimes). This account is for you keeners out there who are always on top of your bills and are paying in advance. Let’s say you have an expense like insurance, which everyone HATES paying but YOU pre-paid. You would record that amount in Pre-Paid Expense and amortize the expense over the term of coverage.
So there you go! We’ve decoded the main asset accounts in your Chart of Accounts. You can keep track of all your accounts—as well as your invoices, expenses, and all your other bookkeeping— directly within Kashoo. Ready to take charge of your business? Try Kashoo free today!