Chart of Accounts

The foundation of your accounting system

The Chart of Accounts is the organizational framework for your entire accounting system. It's a complete listing of every account in your general ledger, systematically arranged to make recording transactions and generating financial reports easier.

Understanding Account Types

Asset Accounts (1000-1999)

Assets are resources your tailoring business owns that have economic value.

  • 1000-1099: Cash & BankChecking, savings, petty cash
  • 1100-1199: Accounts ReceivableMoney owed by customers
  • 1200-1299: InventoryFabric, thread, buttons, etc.
  • 1300-1399: Prepaid ExpensesRent, insurance paid in advance
  • 1400-1699: Fixed AssetsSewing machines, equipment

Liability Accounts (2000-2999)

Liabilities are what your tailoring business owes to others.

  • 2000-2099: Accounts PayableMoney owed to suppliers
  • 2100-2199: Credit CardsBusiness credit card balances
  • 2200-2299: Payroll LiabilitiesWages, taxes owed
  • 2300-2399: Tax LiabilitiesVAT, income tax owed
  • 2400-2699: LoansBank loans, equipment financing

Equity Accounts (3000-3999)

Equity represents the owner's interest in the business.

  • 3000-3099: Owner's CapitalOwner's investment
  • 3100-3199: Owner's DrawingsOwner's withdrawals
  • 3900-3999: Retained EarningsAccumulated profits

Revenue Accounts (4000-4999)

Revenue is the income earned from your tailoring services and products.

  • 4000-4099: Custom TailoringMade-to-measure garments
  • 4100-4199: AlterationsGarment modifications
  • 4200-4299: Fabric SalesRetail fabric revenue
  • 4300-4399: AccessoriesButtons, zippers, etc.

Expense Accounts (5000-6999)

Expenses are the costs incurred to run your tailoring business.

  • 5000-5099: Cost of Goods SoldFabric, thread, materials
  • 5100-5199: Wages & SalariesTailor and staff wages
  • 5200-5299: Rent & UtilitiesShop rent, electricity, water
  • 5300-5399: EquipmentMaintenance, small tools
  • 5400-5499: MarketingAdvertising, promotions

Benefits of a Well-Structured Chart of Accounts

Accurate Financial Reporting

A properly organized chart of accounts ensures your financial statements are accurate and meaningful. You'll be able to see exactly where your money is coming from and where it's going.

Simplified Tax Preparation

When tax time comes, a well-structured chart of accounts makes it easier to prepare your tax returns. You'll have all the necessary categories already organized.

Better Business Insights

With detailed account categories, you can analyze which services are most profitable, which expenses are increasing, and where you might need to make adjustments.

Easier Budgeting

A detailed chart of accounts makes it easier to create and track budgets. You can set targets for specific revenue and expense categories and monitor your progress.

Setting Up Your Chart of Accounts

  1. Go to Finance > Accounts > Chart of Accounts
  2. Review the default accounts provided
  3. Add new accounts specific to your tailoring business
  4. Organize accounts in a logical structure
  5. Assign appropriate account numbers
  6. Add descriptions to clarify the purpose of each account

Real-World Example

"Ahmed runs a tailoring shop specializing in traditional and modern clothing. When setting up his chart of accounts, he created specific revenue accounts for different services: 4010 for Traditional Garments, 4020 for Western Suits, 4030 for Wedding Attire, and 4040 for Basic Alterations. On the expense side, he created detailed accounts for different fabric types: 5010 for Silk, 5020 for Cotton, 5030 for Wool, and 5040 for Synthetic Materials. This detailed structure allows him to see which garment types generate the most profit and which materials cost the most, helping him make strategic decisions about which services to promote and which suppliers to negotiate with."

AccountsAccount Structure