What set of expenditure categories would you recommend for your bookkeeping?


3

Boring subject, I know, but...

I am looking to set up my company's accounts shortly and would appreciate some guidance from more established business operators. I don't know if there is any standard practice in this field, and indeed if it varies from country to country (I'm UK-based), but I need to set up a list of expenditure categories for my bookkeeper. So far, with input from my accountant, I've come up with the following:

  • Travel/subsistence
  • Salaries
  • Dividends
  • Office supplies
  • Rent & utilities
  • Equipment/software

  • Entertaining
  • Miscellaneous

In other people's experience, is this sufficient, or do people find a more detailed breakdown useful? Equally happy to hear that it really doesn't matter too much :-).

Thanks in advance - Steve.

Accounting Bookkeeping

asked Feb 25 '10 at 18:51
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Steve Wilkinson
2,744 points

5 Answers


3

Whatever you choose, here's my advice (as a business owner and a no-longer-practicing CPA): keep it simple. Select a short list of expense and revenue accounts to begin with, and resist the temptation to add more and more detail by having more and more sub-accounts. Even with decent small business booking software like QuickBooks, it's a lot of work if you have too many expense categories.

Concentrate on this: set up a budget (monthly budget for the next 12 months) and as part of that, set up a percentage of revenues that each one of, say, no more than 10 categories should be. Make sure that after subtracting those categories from revenue, you have something left (the technical term for this is "profit").

Once your business is actually operating and you're hitting those numbers for those five categories, if you want to add more complexity (more accounts) then go for it. Until then, keep it simple.

Remember Adler's fourth law: Happiness is positive cash flow. All else will come later.

  • Tim
answered Mar 10 '10 at 09:39
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Tcolling
433 points
  • Tim - I really appreciate the advice to keep it simple - that was what my gut said, but my engineering brain wanted to get everything into some super-duper sophisticated structure. Instead I'll look for ways to cut things to the bone in terms of categories. Cheers - Steve. – Steve Wilkinson 9 years ago
  • Ho ho, I'm also a former software engineering manager. I understand what you mean. - Tim – Tcolling 9 years ago

2

From a practical standpoint, the 'chart of accounts' is only as useful as the information it displays. For example: Category 'Office Supplies' reflects only the number that is entered there, but if you want to track how much you spend on 'Staples' or 'mechanical pencil lead replacements' you would simply have to create a sub-category or separate expense item. It depends entirely on how much detail you need to manage them, and how much time you can afford to devote to miniscule breakdowns.

As a general rule I usually try to keep it just as simple, clean and uncomplicated as possible. The more people you have to discuss these items with, generally the more detailed and 'isolated' you need the categories.

Hope this helps.

answered Feb 25 '10 at 19:56
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A Business Mentor
215 points
  • Thanks Dan - appreciate the feedback - kinda what I was thinking. As you can imagine, I have no desire to track our pencil leads usage :-). – Steve Wilkinson 10 years ago
  • Steve, you never know; pencil leads may be important.....to somebody. :) – A Business Mentor 10 years ago

2

I followed what were the categories used for tax filings. In some cases I broke those down further if it made sense to track specifically.

For many years I managed rental property and I carried over what practices I used there.

For me the issue is two things:

  • What do you need to track for taxes and other compliance
  • What makes sense for you to track in your business for trends, analysis, etc.

(This answer is a bit light on practical recommendations - sorry. I found it was a bit of trial and error to find the best trade-off between too much and too little)

answered Feb 26 '10 at 01:42
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Tim J
8,346 points
  • Thanks Tim - I had forgotten about taxes! :-) – Steve Wilkinson 10 years ago

2

Here are some additional expense accounts that maybe useful to you. I am assuming you are going to be selling some type of SaaS, software or IT services. If you are, you will want to keep track of your direct cost for producing your product as your gross profit margin is a key number to keep track of.

  • Auto expense
  • Dues and subscriptions
  • Filing fees
  • Insurance
  • Postage and delivery
  • Professional fees
  • Repairs and maintenance
  • Taxes
  • Training and seminars
  • Cost of services (for your product)
answered Mar 1 '10 at 21:15
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Starr Ed
948 points
  • Thanks StarrEd - that's confirmed things for me - that's close to the list I've now settled on, noting Dan's advice about and Tim's advice below to keep things simple. – Steve Wilkinson 9 years ago

0

As someone that runs their own bookkeeping service most if not all industry software will be able to throw out a general list of accounts for you. Play with these to add a bit more detail in the areas that you wish to have more control over. But always when in doubt seek professional help. This is, like law, not an area for a startup that should of great focus and time wasting. From everything I have read and learnt so far, outsource these types of things and concentrate on your main expertise.

Just my two cents.

Disclaimer - Not looking for new clients at this time. Looking to start my own business here as well.

answered Feb 27 '10 at 02:15
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Aaron
124 points
  • Thanks for this Bob - I have been taking my accountant's advice but they don't have strong recommendations, and the more time I spend asking them questions like this (to which there is no fixed answer), the bigger their bill of course. Luckily I have a close friend who used to run the accounts for a big non-profit so I have someone I can outsource to as you wisely advise. Cheers - Steve. – Steve Wilkinson 9 years ago
  • Steve, Accountants are really expensive to talk to about small issues like this. You should be utilizing a bookkeeper for your day to day transactions. What you need an accountant for is to go over your books at year end or quarterly and to make the adjusting entries for tax purposes. The difference here is the amount of money you pay. An accountant can cost up to $100 per hour where as a bookkeeper around 25-30 per hour. You can do 95% of your daily business transactions with a bookkeeper. This saves you a ton of money over the years. Spend you money wisely in these areas. – Aaron 9 years ago

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