Phase 1 Step 3 of 3

📊 Chart of Accounts

The Chart of Accounts (CoA) is the backbone of your accounting system. It's a categorized list of all accounts where your business transactions are recorded. Think of it as the filing system for your finances—everything has its place!

📚 What you'll learn:

✓ The 5 fundamental account categories
✓ How automated tax accounts work
✓ Best practices for customizing your CoA

Understanding the Hierarchy

Versoll Books uses a standard 5-category accounting system to keep your financials organized. Every account falls under one of these primary groups, following the fundamental accounting equation: Assets = Liabilities + Equity

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The Accounting Equation Explained

Assets = Liabilities + Equity is the foundation of double-entry bookkeeping. Every transaction affects at least two accounts, keeping this equation always in balance. When you make a sale, Assets (Cash/Bank) increase and Income increases (which flows into Equity).

Key Accounts in Versoll Books

While you can create custom accounts, Versoll Books manages several critical accounts automatically to ensure Indian tax compliance:

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Tax & Compliance Accounts

When you enable GST or TDS, Versoll Books automatically creates and manages these liability accounts:

  • GST Payable (Output GST): Tracks GST collected from customers that must be paid to the government. When you create a sales invoice with 18% GST, this account is credited automatically.
  • ITC (Input Tax Credit): Tracks GST paid to suppliers that you can claim back. When you record a purchase invoice, this account is debited, reducing your net GST liability.
  • TDS Payable: Tracks Tax Deducted at Source on payments to contractors, professionals, and rent. This amount must be deposited with the government monthly/quarterly.
  • TCS (Tax Collected at Source): For businesses that need to collect tax on certain sales (e.g., scrap, mineral sales).

💡 Smart Automation: These tax accounts are updated in real-time as you create invoices and bills. You don't need to manually calculate or post entries—Versoll Books handles it all!

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Bank & Cash Accounts

Manage your liquid assets by creating separate accounts for each bank account and cash drawer. This separation is essential for accurate cash flow tracking and bank reconciliation.

Best Practices for Bank Accounts:

  • Clear Naming: Use format "Bank Name - Account Type" (e.g., "HDFC Bank - Current Account")
  • Separate Each Account: Don't combine multiple bank accounts into one
  • Include Account Numbers: Optionally add last 4 digits for clarity (e.g., "ICICI - 1234")
  • Cash Registers: Create separate accounts for "Cash in Hand - Store" vs "Cash in Hand - Office"

✓ Why This Matters: When you import bank statements for reconciliation, Versoll Books matches transactions to the correct account automatically. Clear naming saves you hours of manual matching!

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Customizing Your Chart of Accounts

To add or modify accounts, navigate to Accounting > Chart of Accounts. You can create a hierarchy with parent and child accounts to track expenses in more detail.

Example: Expense Account Structure

📁 Rent Expenses (Parent Account)
└─ 🏢 Office Rent
└─ 🏭 Warehouse Rent
└─ 🚗 Parking Space Rent
📁 Salaries & Wages (Parent Account)
└─ 👔 Administrative Salaries
└─ 👷 Production Wages
└─ 💼 Sales Team Salaries
📁 Marketing & Advertising (Parent Account)
└─ 🌐 Digital Marketing
└─ 📰 Print Advertising
└─ 🎯 Event Sponsorships

💡 Pro Tip: Sub-accounts give you detailed insights in reports while keeping the main list clean. You can view totals by parent account or drill down into child accounts for specifics.

Common Account Naming Conventions

Consistent naming makes your Chart of Accounts easier to navigate and your reports more professional:

✓ Good Examples

  • ✓ HDFC Bank - Current
  • ✓ Office Rent Expense
  • ✓ Customer - ABC Corp
  • ✓ Computer Equipment
  • ✓ GST Payable - Output

⚠️ Avoid These

  • ✗ Bank123
  • ✗ Misc. Expense
  • ✗ Customer1
  • ✗ Stuff
  • ✗ Tax Account

🎯 Key Takeaways

1. Your Chart of Accounts is organized into 5 categories: Assets, Liabilities, Equity, Income, Expenses

2. Tax accounts (GST, TDS) are managed automatically—no manual entries needed

3. Use clear, descriptive names and create sub-accounts for detailed tracking

🎓 Phase 1 Complete! You've now mastered the foundations: setup, configuration, and understanding how accounts work. Ready to start making money? Let's move on to creating sales invoices and collecting payments!

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