Money Talk: The Importance of a Properly Constructed Chart of Accounts

The accumulation of financial data is usually done with a general ledger accounting system. Designing a proper chart of accounts to work within your general ledger is of the utmost importance. If your Chart of Accounts is well designed, you can easily extract all the information necessary to compare your firm's performance with that of the industry's profit leaders.

A Chart of Accounts is a set of account headings that is designed specifically for each firm. It is patterned after each firm's organizational structure and, when collecting cost information for cost control and hourly cost rates, the Chart of Accounts will reflect the cost or profit centers. A proper Chart of Accounts for a graphic arts company is similar to the makeready of a printing job. When one has the proper Chart of Accounts, business transactions are recorded and accumulated in a way that simplifies the preparation of meaningful financial information. Often the operating statements of a printer cannot be properly evaluated. Simple financial data such as the cost of Paper, Other Chargeable Materials, Outside Services, Factory Payroll, or Expenses cannot be determined from the operating statement. Administrative and Selling Expenses cannot be isolated. This critical information is missing because these printers do not have a Chart of Accounts that separates and accumulates transactions according to their management needs.

A Chart of Accounts need not be vast and complex; the makeready involved depends on the size and structure of your individual company. Three major objectives should be accomplished by a printer's chart of accounts.

·        Make it easy for your company to prepare proper and accurate financial statements.

·        Enhance your company's ability to compare your financial information to industry standards—The Printing Industries of America Ratio Study.

·        Set up financial data in a way that will allow you to calculate accurate cost rates.

Charts of Accounts are not like shirts or suits that can be purchased off the rack and fit with only a little adjusting. If your Chart of Accounts is not designed for a printing firm, and specifically your printing firm, it will not be particularly useful. The more "tailor-made" your chart of accounts is—designed for your firm and your needs—the more value it will provide.

A Chart of Accounts controls every company's financial system. Each account should be broken down into detailed headings so as much information as is necessary or relevant can be recorded. In broad terms, Charts of Accounts have similar formats listing assets owned (cash, etc.), debts owed, income received (sales), and expenses. Specific accounts, however, are determined by the specific business or industry that the company is in.

The basic principles involved in setting up a proper and useful Chart of Accounts are:

A. Your Chart of Accounts should define and measure those categories of transactions that need to be monitored and tracked. For example, most printers should have materials broken down into Paper, Ink, Plates, Other Chargeable Materials, and Outside Services.

B. Base your Chart of Accounts on your company's organizational structure. Organize the Chart of Accounts according to your company's major operations (factory, administrative, selling) by department (prepress, press, bindery) and by cost center (digital prepress, four-color press, six-color press, folder, stitcher, hand bindery, etc.).

C. How complex your Chart of Accounts is depends on the size of your company and the products and processes involved.

The Printing Industries of America Ratio Study’s Chart of Accounts is used in the Ratios Studies and is an excellent chart of accounts for most printers.

Stuart Margolis is a preeminent financial expert for print media and packaging. Most notably, he is recognized for profit optimization that enables companies to grow through increased sales, capacity expansion, acquisition, and cost optimization. Methodologies developed in his books,  A Printer’s Chart of Accounts and A Printer’s Guide to Profits 1-2-3:  The Key to Value-Added Financial Management, are implemented by thousands of companies nationwide. Margolis compiles the annual Printing Industries of America Financial Ratio Reports which are utilized as the industry’s premier benchmarking tool. 

Margolis Partners has long been recognized as the financial expert for family-owned businesses with a specialty in the printing, packaging and allied graphic communications industries, assisting thousands of companies with strategic and financial management, valuation, mergers/acquisitions, accounting, audit and tax services.  The firm is noted for its expertise in enabling companies to optimize profits. Proudly, it is the purveyor of the industry’s Value-Added Principles of Management, and compiles the annual Printing Industries of America Ratios, the printing industry’s premier financial benchmarking tool.