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Setting up a chart of accounts and chart of adjustments

Two charts vital for any business that wants to keep its financial house in order—Chart of Accounts and a Chart of Adjustments. Think of them as the financial world's dynamic duo, keeping your business's numbers in superhero shape.

Why set up a chart of accounts (CoA)?

Imagine walking into a library where books are scattered all over the place. That's what your financials would look like without a Chart of Accounts (CoA). The CoA is like a bookshelf that categorizes and organizes every financial transaction your business makes. It's a complete list of all the accounts in the general ledger, and it's essential for two main reasons:
  1. Organization:
     It keeps your finances tidy. Each account has a unique number, name, and code that tells you what it's for—like separating chapters in a book.
  2. Reporting:
     It helps in generating accurate financial reports. When your accounts are well-organized, pulling together reports for tax filings, investors, or internal reviews is a breeze.
Creating a CoA isn't just a one-time event; it's a living part of your business that evolves. You'll add new accounts as your business grows and refine existing ones to match your financial activities more closely.

Why set up a chart of adjustments?

Now, let's talk about the Chart of Adjustments. This is where you record adjustments to your accounts to reflect the true tax implications of your financial activities. It's like having a personal editor for your financial story, ensuring that what you report is accurate and compliant with tax laws. The Chart of Adjustments is crucial for:
  1. Accuracy:
     It ensures that the book values are adjusted correctly for tax purposes, giving you the real picture of your taxable income.
  2. Compliance:
     It helps you comply with tax laws by correctly recording book-to-tax adjustments, which is critical during tax season.
Just like the CoA, the Chart of Adjustments is tailored to your business's needs. You can have different charts for domestic and international transactions, depending on the complexity of your operations.

The nuts and bolts

Setting up a CoA and a Chart of Adjustments can seem daunting, but it's all about having the right information at your fingertips. Here's a quick rundown:
  1. Chart of Accounts: You'll need the account number, account description, and the TRC-TCC code combination. Remember the limits: 45 characters for the account number and 65 for the description.
  2. Chart of Adjustments: Link your account numbers with their respective TRC/TCC codes to the Chart of Adjustments. This will set the stage for recording various types of adjustments, like book, reclass, tax, AMT, and ACE.
You can create these charts manually, import data, or copy existing data—whatever works best for you. Just make sure all accounts and adjustments are accurately coded and categorized. In essence, setting up a Chart of Accounts and a Chart of Adjustments is about laying a solid foundation for financial clarity and compliance. It's a bit like keeping your financial house clean and orderly—so that when tax season comes knocking, you're ready to welcome it with open arms and a clear conscience. So, whether you're a seasoned pro or new to the game, remember that these charts are more than just lists—they're tools that help your business tell its financial story accurately and confidently.

This article applies to:

  • Product: ONESOURCE Income Tax
  • Subject: Chart of Accounts
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