Chart of Accounts: Using Categories

Q: I am taking care in setting up my chart of accounts, using MoneyWorks Cashbook on a my Mac and wanted to know how to use categories?

About the Chart of Accounts

All versions of MoneyWorks (Cashbook, Express & Gold) contain a fully integrated General Ledger and standardized chart of accounts. The chart of accounts templates (e.g. General Business etc.) are presented with the account types sequentially numbered in North American standards (e.g. GIFI in Canada. GAAP in the USA).

Of course the numbered codes (e.g. 7 alphanumeric characters) and the descriptions (e.g. 39 alphanumeric characters) can be changed to best represent and record the details that you want to or are required to track in your business (see TIPS article: modifying your chart of accounts).

Additionally MoneyWorks Gold consists of a departmentalized general ledger, meaning that you can set up departments and/or cost centers that allow you to track and report on individual business units e.g. locations, fleet of vehicles, departmentalized personal etc, See Tips article: How Departments work n MoneyWorks Gold.

Categorizing your Chart of Accounts

Alternatively to departmentalized or cost center accounting, many businesses categorize their accounts so that they can report and analyze their business results (e.g. Balance Sheet, Income Statement or P&L) in differing formats. Although they may possibly want to record their expenses, income, assets etc. into very detailed accounts for governmental or other financial considerations, when reviewing their results each month they are more concerned about how much was expensed by category or type of expense, e.g. all vehicle expenses as opposed to individual expenses for each vehicle or all communication charges versus each cell phone, land line, fax and internet connection.

To accomplish this MoneyWorks provides customizable and assignable categories that can be applied to all or any account or group of accounts and assigns then as a guide to the P&L accounts. Select the Chart of Accounts in the MoneyWorks Navigator [Red Arrow] and click Categories [Green Arrow].

Note: also accessible under the Show menu at the top of your screen.

The Categories window will open listing the default categories that MoneyWorks has provided. This is where you can create new Categories [Red Arrow], modify existing category descriptions or code by highlighting a category and clicking the Modify icon [Green Arrow] or Delete a category [Blue Arrow]. Note, a category cannot be deleted if it is being used or assigned to an account.

To un-assign or conversely assign a new category to an account, you must open the account in your accounts list (Show menu > Accounts), double click the account and then either choose None to remove all or choose an alternative category from the drop down list [Red Arrow below].

e.g. Removing the default SALES category assigned to account 4000 by changing it to None.

Determining your categories

The hardest part about assigning categories is deciding what categories you want to use. One way to accomplish this is to set the Categories up as header fields (Headings) in your chart of accounts when you first start customizing your accounts e.g. adding banks, adding or removing assets, adding, removing or changing the descriptions of revenue and expense accounts.

As an example let’s start with the P&L (Income statement) accounts for the Yabba Dabba Doo company.

Although the company has different sources of sales revenue e,g, Product, Service and recovered freight charges, in the list of accounts below, the owner only wishes to view total income generated by sales each month, so account 4000 has been set up as heading account called Income.

The company also has investments that produce other income and those accounts are numbered sequentially under the heading account Other Income and likewise the Cost of Sales accounts are all grouped under a simple Cost of Sales heading account

However the company tracks expenses in a more detailed fashion e.g. multiple telephone bills, cell phones, internet etc. which have been grouped under the 7200 Communications heading account, and likewise multiple vehicles, the owners Lexis, their spouse’s Prius and a company van that have all be listed under the Heading account 7300 Vehicle Expenses.

An account is changed to a Heading account by checking the Heading field [Red Arrow] and in this example for the Advertising & Marketing Expenses, changed to the colour Red so that the Headings or in reality the categories will stand out when you look at the accounts list.

You cannot record balances to a heading account or enter them into transactions. They are simply created to assist you in organizing or viewing your chart of accounts.

Note by using the Heading accounts as the category headings it makes it easier to assign the various numbers/codes to the real expense accounts so that the accounts end up being sequentially grouped in the order you, the owner would like to view them.

After removing the assigned, default categories that MoneyWorks created e.g. SALES, ADMIN as mentioned above, from the existing accounts, the next step is to delete them from your list of categories and then create the new Categories that have been decided upon and entered in the accounts list above as headings.

Note: the codes used for the new categories are the same as the code numbers assigned to the Heading accounts in the chart of accounts and the descriptions of the categories are the descriptions that will be used in your P&L reports.

Likewise the Yabba Dabba Doo company categorized their Balance Sheet accounts, see the categories above and the heading Accounts accounts in red below for the Balance Sheet accounts.

Categorized Reports

The whole purpose of categorizing your accounts is to have options in reporting and MoneyWorks gives you many options for each financial report. This is accomplished by selecting how you want to sort the report.

e.g. The Profit & Loss for Month” report. Selecting the report for the Navigator or under the Reports menu at the top of your computer screen, the setting window opens with the default Sort: setting being by Account Code [Red Arrow]. After setting the from to Period to January in this example [Red Box], assigning a title [Blue Arrow], checking my page layout [Purple Arrow], turning off the date (today’s date) [Orange Arrow} and selecting my Output to Preview (as opposed to Print, Email, Excel, Numbers, Word etc.)

The default setting of Sort: by Account Code, produces a report listing every Sales, Income, Cost of Sales and Expense account that has a balance for the month of January in a two page report.

Running the same report you can change the Sort by clicking the drop down arrows [Green Arrow] and selecting Sort by Category [Red Arrow] Condensed [Blue Arrow].

The resulting one page report groups all the categorized accounts under their category, with the assigned category code and description e.g. all the separate vehicle expenses under the category 7300, Vehicles etc.

Alternatively you can sort the Report to Subtotal by Category

Which produces a longer 3 page report sorting each account by category and adding a subtotal of the category.

Other Reports

The main purpose of Categories is to be able to report your financial reports in different ways, e.g. in summary by condensed or expanded with subtotals. The same options apply to all the P&L reports and other financial reports such as the Balance Sheet.

Although there are are no balances for each account in this sample file the default Balance Sheet sorted by Account would look similar to this on the first page.

Condensed by Category would look like this on the first page.

You also have the options of assigning values to three other category fields in each account or if care was taken in numbering your accounts as the Yaba Daba Doo company did, you could ignore categories altogether and run your reports sorted by the first, first two or first three characters used in the account codes.

For example: Sorting the monthly P&L to sort condensed by the first two digits…

The result is a report sorted in the same grouping as the Condensed by Category Report.

Except in this case the descriptions of the summaries accounts e.g. 70 Payroll Expenses are coming directly from the descriptions assigned to the Heading accounts.

Bottom line: Categories allow you to analyze you business is simpler or different formats while retaining detailed recording of activity. Setting up categories also assists in better organizing your accounts with the use of headers (heading accounts) and as with most things in MoneyWorks there are multiple options that you as the business owner or person responsible for the accounting system have.

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