Training Overview
Accounting Basics
Chart of Accounts

Accounting Basics

Lesson #


Chart of Accounts

In this video, we take a look at the Chart of Accounts in NetSuite and give tips on how to set up and use it.

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Video Transcript

Welcome back. In this lesson, we're going to be taking a look at the chart of accounts. Now, the chart of accounts is exactly that. It is a chart that shows all of the accounts that that company has. So it's just a long listing showing all of these different accounts, sales accounts, expense accounts. because Netsuite basically has all these different transactions occurring. And the chart of accounts is a guide for Netsuite to know, okay, this money that goes to this account, that goes to this sales account or this money that was spent, that should be recorded to this expense account. So you can think about the chart of accounts a lot like a table of contents. It's that guide for Netsuite and that guide for the users of Netsuite in terms of where money is flowing.

But just like a book, the table of contents doesn't tell you whether it's going to be a good book or bad book. It's simply telling you what the chapters are called. So looking at a chart of accounts isn't really going to give you any information about the financial health of a company. So one thing to keep in mind with the chart of accounts, especially at the beginning of the process of implementing Netsuite and kind of transferring over to next week, is that you really want to make your chart of accounts at the beginning, you want to set it up so it's perfect for your company and fits with the functionality of Net Suite. So this is not necessarily every company, but there are some instances where companies based on the old software they used, they might have a bit of a bloated chart of accounts where they have, for example, many different sales accounts because let's say in the example we use earlier, where we have the Dunder Mifflin Paper Company, maybe they have a line that's like paper products and they have another type of product that's paper supplies. And then they also have a shredding service. And maybe they also sell photocopying machines. So all of these different product lines, they might have created a sales account for paper products, another one for photocopiers. So suddenly they have this massive chart of accounts with all these little sub accounts that are used to kind of record money for some specific type of sales or some specific type of expense.

But in Netsuite, if you take a look at the earlier module we did on classifications Netsuite already natively has ways of categorizing and segmenting these things. So when it comes to products, there's a whole type of classification called classes and you can have paper product class, you could have a photocopier class and that way you really just need this one sales account and in that account you can filter that by classes as or if you have an expense account, could filter that by departments, so you could use it by departments, by classes. There's also locations for inventory, for example, and there's also subsidiaries. So all of these things are tools that ness we already has to be able to kind of look at the information best that you need to look at. And you can do that and still consolidate all these accounts. So instead of having five different sales accounts for each product line, you can consolidate it down to one and utilize those Netsuite classifications. So again, it's really important to take the time to make sure that your chart of accounts is fully laid out at the beginning of that process, because once you actually implement Netsuite and transactions start hitting those accounts, they're going to be locked in. You can't just remove the accounts, you can't change them once the transactions have been recorded to those accounts. So make sure it's done properly in the beginning and then you have a really consolidated, streamlined and appropriate chart of accounts for your organization.

Now before we move on to the next video, I want to show you what a chart of accounts looks like. So let's take a look at this. all right, So here we are in our home dashboard. So let's pull up the chart of accounts. We just got to reports down to financial and then you'll see here, chart of accounts. So let's click on that. And as you'll see, it pulls up this giant list. So here you'll see all of these different accounts and so you see the names here, right? There's a cash account. There's accounts receivable. You'll see the type of account here. So if it's an asset account, an expense account, it'll clarify it in this column over here All right. And one thing to point out is over here, notice we have these numbers that are associated with the account. That can be a really useful tool. And while it's not mandatory to set it up this way, it's commonly done where you'll have a whole kind of segment of numbers that are associated with a type of account. So it's not uncommon to, let's say, have all the one thousands. So it's like 1000, ten, 1000, 20. Those might all be asset accounts or all the 2000s are expense accounts. and you can use that as a guide. So when you see that account number, you automatically know what type of account you're dealing with and it helps you to just more rapidly deal with these things instead of typing out a long account name, you can just input that number and it immediately links up to that account. and so you'll get familiar with those. So those numbers can come in handy.

One additional thing I want to point out here is far off on the right. Some people get confused because we've got this balance column and you would think, oh, well, that's showing me the balance of that account. But not necessarily really, that's showing you the balance of all transactions that have hit that account since the origination of that account. So you might have a cash account that showing millions and millions of dollars, but in reality, that's just showing all the cash that's been in that account. It's not necessarily showing the cash that's in it right now. So if you want to actually see what these accounts have in them, you should take a look at the trial balance, which we will cover in a future video. just understand for now that that balance column is showing everything that's hit that account historically. So it might not be the best place to look at to get kind of present information. And that's it for the overview on the chart of accounts. I'll see you in the next video.