A “chart of accounts” is an accounting concept that refers to a complete listing of the incomes, expenses, assets, liabilities, and equities that together describe a business’s holdings and activity. Bookkeepers and accountants need a comprehensive chart of accounts to prepare financial statements and keep record of important distinctions for accurate tax reporting.

A carefully calibrated chart of accounts enables easy budget management, analytics for decision making, and of course more formal reporting. This guide, in conjunction with Ambrook Support Staff, will help you set up your Chart of Accounts to achieve all of those goals.

This article will focus specifically on Incomes, Expenses, and the different tags you can use in conjunction with them like Enterprises or Funding Sources. For an overview of assets, liabilities, and equities, see Setting Up Your Balance Sheet .

Incomes and expenses are “what a business does” on a day to day basis. In Ambrook we refer to all income and expense accounts as Categories. Any money coming into or going out of your business needs to be categorized properly. We call the process of categorizing your transactions tagging. This is where a well thought out chart of accounts will save you time and help you to answer questions about your business.

You’ll see in the examples below that Ambrook allows you to create subcategories. This is a powerful tool that lets you analyze your business at multiple levels of granularity, so you should consider whether it makes sense for you.

You are probably familiar with the IRS Schedule F form, which is the main way that farmers in the US report their income and calculate taxes on a yearly basis. Each income and expense category in Ambrook is to be automatically associated with boxes on the Schedule F, which makes it easy to add up all the totals at the end of the year

These categories should represent all the ways that your business earns money. Usually for farms and ranches this is primarily through the sale of produce or livestock, but farms often have other sources of income, like land rent, custom hire income, or even consulting fees. Set up accounts for all of the different channels through which you earn income and that way you’ll know which of those channels to focus on or even which ones to abandon.

You may even want to get even more specific and track differences within an income stream; i.e. not just that I sold this to a processor, but I sold this to a specific processor. There is a trade-off between having a fully comprehensive chart of accounts and making it easy for you or your bookkeeper to categorize transactions quickly. We’ve found that it's easier to start with a smaller set of accounts and make it more detailed as you get used to Ambrook.

Likely the biggest section of your chart of accounts, expenses are all of the things your business spends money on. This includes direct costs of the products you sell (often known as “Cost of Goods Sold” or just “COGS”), as well as any other operating expenses or overheads that are required to keep a farm running. We start you with a suite of common expenses, but every business has different ones. If it's money that you spend on goods or services for your business (and it's not a Capital Expenditure), it's an expense. Setting up your chart of accounts to track your expenses at the right level of detail can be useful when you want to figure out how to cut costs later.

To help with reporting and analytics, Ambrook groups your category tags together under parent categories that help you find them during tagging and also structure your financial reports. By default, we start you with the following groups:

For more complex operations, you may want to create your own category groupings to enable fine-grained profitability reporting and easier organization of tags within Ambrook.

Nesting Charts of Accounts

To create custom nesting hierarchies, navigate to the Category manager. When editing a category, any existing category can be selected as a “Parent Category.” Once a parent category is selected, save the category and this nesting will be reflected in your statements and analytics.

There are a few restrictions to be aware of when nesting categories:

The incomes and expenses in your chart of accounts are meant to capture regular business activity, but sometimes money will enter or exit your business and there won’t be an obvious tag for it. If that’s the case it’s probably best grouped as “Other”. Some other expenses are normal, but only happen once per year, and some people use “Other” as a catch-all for things they don’t know how to categorize. While this is fine once in a while, if you find yourself using “Other” too much you may need to add to your chart of accounts.

Once you have your accounts set up, you’ll be ready to start tagging income and expenses and using Enterprise, Entity, and Funding Tags.