Small Business Shared Interest Group

  • 1.  Chart of accounts revamp

    Posted 03-16-2025 05:07 PM

    Hi all!

    I am expanding an accounting department for a rapidly growing company. My team is growing and we are implementing new software. I would like to revamp the chart of accounts from a simple structure to one that is more thought out and includes departments. We are a professional services company, so no inventory. Our main costs are the salaries associated with our services, and our overhead. I have a decent level of knowledge and experience on the subject, but I am far from an expert on this subject.  I would love to hear suggestions / pitfalls / advice so I can get this new COA right the first time. 

    Thanks in advance! :)



    ------------------------------
    Jennifer Pinder, MBA, CMA
    Controller
    Watchdog USA, LLC
    Philadelphia, PA
    United States
    ------------------------------


  • 2.  RE: Chart of accounts revamp

    Posted 03-17-2025 09:52 AM

    I would pitch in and weigh in, but revamping the chart of accounts (COA) for a rapidly growing professional services company requires a comprehensive understanding of various organizational and financial factors. I would want to know things such as company size, departmental structure, service lines, corporate status (public or private), accounting methods, number of operating banks, and the complexity of financial instruments, including:

    1. Management Reporting Requirements

    2. Regulatory and Compliance Obligations

    3. Existing Financial Systems

    4. Detailed Expense Categorization, classes, subclasses

    5. Revenue Recognition Policies



    ------------------------------
    Ilya Ilienko, dual MBA, CPA, CMA
    Board Member / Director
    East Coast - United States
    ------------------------------


  • 3.  RE: Chart of accounts revamp

    Posted 03-17-2025 02:27 PM

    Thanks for the reply, @Ilya Ilienko!  Here is some additional insight.

    We are moving from QB Professional Services to NetSuite SuiteSuccess. 

    It is a privately owned company with just under 100 employees and approximately $20M in revenue. 

    We have 1 bank (3 accounts) and 2 credit card providers (1 for field people and 1 for Ops), no debt. 

    We have 2 main lines of service (Project Management and Recruiting). Any more granular sub-service lines are captured in our other software, NetSuite SuiteProjects Pro, which is where we collect time and expense data and generate invoices. This data then flows into the accounting software.

    We use the class feature in QB to break out our East coast and West coast locations. 

    Departments that I want to set up are Accounting/Finance, HR, IT, Marketing, Overhead (rent, insurance, etc). I want to be sure not to miss anything here.

    Most of our contracts are long term, but we earn revenue monthly and record revenue as earned. No deferred revenue.

    I have been making improvements to the COA since I started, however I need to take this to the next level now that we are moving into a new software.

    Does this help clarify? Thanks again!



    ------------------------------
    Jennifer Pinder, MBA, CMA
    Controller
    Watchdog USA, LLC
    Philadelphia, PA
    United States
    ------------------------------



  • 4.  RE: Chart of accounts revamp

    Posted 30 days ago

    @Jennifer Pinder,

    Thanks for the details. Glad this thread is moving and pretty engaging, many businesses face this dilemma. Since you are moving reporting platforms à QuickBooks to à NetSuite and planning departmental structure, this is a great if not the best time to revisit and clean up the COA.

    @David Belnap makes a great point about numbering conventions, and I'd add that aligning your COA structure with NetSuite's native reporting capabilities can bypass future headaches.  Few items:

    Departmental Structure & Segmentation

    Since you're introducing departments, you can play around with segment-type account coding (locations, functions…) rather than just relying on account numbers strictly. This is what we did in both Intacct and QB. NetSuite also has dimensions.

    What are you going to do for shared costs? Allocate it amongst depts.?  That may impact your COA design.

    Cost of Services vs. Operating Expenses

    As @David Belnap pointed out, defining COGS /  COS in a professional services firm can be tricky. Primary cost driver is salaries, you would have to separate direct labor VS. overhead? (billable / nonbillable)

    What do you intend to do w contractor expenses?

    Revenue Recognition & Project Accounting

    Since you earn revenue monthly at least you don't have to deal w deferred revenue, focus will be ensuring a clean revenue breakout by service line (Thi8s would be interesting, but you need to have intimate knowledge of your internal operations to answer this: Departments that I want to set up are Accounting/Finance, HR, IT, Marketing, Overhead).

    If NetSuite SuiteProjects handles sub-service categorization, your COA may not need extreme granularity on revenue accounts, but clarity on mappings will be key.

    Scalability & Future Growth

    To David's point in case of company's expansion, ensure the COA structure allows for adding new departments, services, or locations? Otherwise can be a HUGE hassle later.

    Can we help you a bit further? We can always review/chime in what you have got set up in the sandbox.

    Your fellow teammate/volunteer,

    Ilya i.



    ------------------------------
    Ilya Ilienko, dual MBA, CPA, CMA
    Board Member / Director
    East Coast - United States
    ------------------------------



  • 5.  RE: Chart of accounts revamp

    Posted 27 days ago

    @Jennifer Pinder,

    Thanks for the details. Glad this thread is moving and pretty engaging, many businesses face this dilemma. Since you are moving reporting platforms à QuickBooks to à NetSuite and planning departmental structure, this is a great if not the best time to revisit and clean up the COA.

    @David Belnap makes a great point about numbering conventions, and I'd add that aligning your COA structure with NetSuite's native reporting capabilities can bypass future headaches.  Few things:

    Departmental Structure & Segmentation

    Since you're introducing departments, you can play around with segment-type account coding (locations, functions…) rather than just relying on account numbers strictly. This is what we did in both Intacct and QB. NetSuite also has dimensions.

    What are you going to do for shared costs? Allocate it amongst depts.?  That may impact your COA design.

    Cost of Services vs. Operating Expenses

    As @David Belnap pointed out, defining COGS /  COS in a professional services firm can be tricky. Primary cost driver is salaries, you would have to separate direct labor VS. overhead? (billable / nonbillable)

    What do you intend to do w contractor expenses?

    Revenue Recognition & Project Accounting

    Since you earn revenue monthly at least you don't have to deal w deferred revenue, focus will be ensuring a clean revenue breakout by service line (Thi8s would be interesting, but you need to have intimate knowledge of your internal operations to answer this: Departments that I want to set up are Accounting/Finance, HR, IT, Marketing, Overhead).

    If NetSuite handles sub-service categorization, your COA may not need extreme granularity on revenue accounts, but clarity on mappings will be key.

    Scalability & Future Growth

    To David's point in case of company's expansion, ensure the COA structure allows for adding new departments, services, or locations? Otherwise can be a HUGE hassle later.

    Can we help you a bit further? We can always review/chime in what you have got set up in the sandbox.

    Your fellow teammate/volunteer,

    Ilya i.



    ------------------------------
    Ilya Ilienko, dual MBA, CPA, CMA
    Board Member / Director
    East Coast - United States
    ------------------------------



  • 6.  RE: Chart of accounts revamp

    Posted 03-17-2025 04:18 PM

    The biggest headache I have when it comes to revamping COAs is the numbering system. There is also the argument about what constitutes cost of services sold in a service-based company like yours.

    With numbering, I use 5 or 6 digit numbers depending on how many sub levels there are.

    1#### are Assets

    2#### are Liabilities

    3#### are Equity accounts

    4#### are Revenue accounts

    5#### are COGS

    6#### are Expenses

    7#### are Other Income

    8#### are Other Expenses

    9#### are Non-posting accounts.

    I can share a more detailed template if you need one.



    ------------------------------
    David Belnap, CMA, CSCA, CPA
    David.Belnap@...
    Hollywood, FL
    ------------------------------



  • 7.  RE: Chart of accounts revamp

    Posted 03-17-2025 04:26 PM

    @David Belnap Thank you for bringing up the topic of what constitutes COGS for a service-based company. This could be a whole separate thread (or webinar topic, LOL)!  I would love to dive into that further at some point, as there seems to be many conflicting opinions on ways to record those resource costs. ;) 

    For the COA, the SuiteSuccess software has a suggested numbering template, so I will begin there and see how things fall. 

    Thanks for the template and the feedback!



    ------------------------------
    Jennifer Pinder, MBA, CMA
    Controller
    Watchdog USA, LLC
    Philadelphia, PA
    United States
    ------------------------------



  • 8.  RE: Chart of accounts revamp

    Posted 03-17-2025 04:40 PM

    My general rule of thumb for COGS, whether Product or Service-based, is what expenses would the company NOT incur if a particular sale did not happen. For my own firm, I classify my bookkeeping staff wages as COGS but my admin assistant is a general expense. If I have no clients with bookkeeping, she has no work and no pay. The same is not true of my assistant.



    ------------------------------
    David Belnap, CMA, CSCA, CPA
    David.Belnap@...
    Hollywood, FL
    ------------------------------



  • 9.  RE: Chart of accounts revamp

    Posted 30 days ago

    @David Belnap Could you please share some light on when "Non-posting accounts,' is used and how it is managed in an accounting software?

    Thank you.



    ------------------------------
    Abdul Kalam Achi Chillimmal CMA
    Supervisor
    Fibrex
    Abu Dhabi
    United Arab Emirates
    ------------------------------



  • 10.  RE: Chart of accounts revamp

    Posted 30 days ago

    Abdul,

    There are generally only two instances of non-posting transactions, Estimates and Purchase Orders. Neither of these result in journal entries that affect any financial statement. However, most accounting systems require an offsetting entry for the system to have debits = credits. This is where the non-posting accounts (NPA) are used. When the Estimates are converted to Invoices, the entry is reversed out of the NPA and posted in AR. With Purchase orders, they are converted to a bill and go into AP.



    ------------------------------
    David Belnap, CMA, CSCA, CPA
    David.Belnap@...
    Hollywood, FL
    ------------------------------