John from Insight Tax explains a chart of accounts using a gym-shelf analogy: each account is like a labeled shelf, and putting transactions in the wrong place creates chaos. For micro gyms and boutique studios, about 15 to 20 expense categories keeps things organized and readable.
In this tip, I wanted to talk about your book's chart of accounts. When I was in accounting school, one of my teachers obnoxiously explained to me, if you want to understand what the chart of accounts is, just say it slower. It's the chart of your accounts. I don't really feel like that helped me, but maybe it'll help you. So think about in a gym, think about the shelves and the different places where you store the equipment. So in our gym, we have a shelf for the ab mats. We have a different spot where we hang up our yoga mats. We have a spot where we want our air bikes to go and our rowers to go. We have a rack for our dumbbells, and we have a separate rack for our wall balls. So your chart of accounts and your bookkeeping is very similar to the different shelves that a gym would have. The re— and the reason is because think about what happens if someone's storing an ab mat where the dumbbells go, or someone's trying to hang an air bike on the yoga rack where the mats are. It— the gym would get very disorganized very quickly. So your chart of accounts is really just a way to organize your transactions, with the main objective being if we organize them the right way, when we sit down and review our books twice a month, then we can have confidence that transactions are in the spots that they need to be, that effectively it's organized. So an account is something like retail income, It could even be cost of goods sold for buying supplements that you then resell. Advertising is an account. Those are all just different accounts in your chart of accounts. Your accounting software will have a spot for a chart of accounts. We encourage you to review it and make sure that it's not too big. You don't need that many accounts in there. I would say 15, around 15 to 20 expense categories, expense accounts is more than enough. Again, ultimately the goal is when you look at your financial statements every 2 weeks like we recommend, you will be able to understand what the numbers are saying because you understand what is in each account. If you would like to see the chart of accounts that we recommend for micro gyms and boutique fitness studios, feel free to email me, john@insighttax.com, and I'd be happy to share with you that chart of accounts that we use with our almost 300+ micro gym clients. So if you like the tip, feel free to subscribe to our YouTube channel as well. Okay, we'll talk to you later.
