Understanding the Chart of Accounts for Retail Businesses
BONUS: Free template just for you!
The foundation of a solid & easy to use bookkeeping software for your boutique is is a customized chart of accounts for retail businesses. It might sound a bit intimidating, but I promise it’s not as complicated as it seems.
Be sure to read all the way to the end, because there is a free download to help give you a head start with setting this up for your boutique business!
What is a Chart of Accounts?
Think of it as a list that is used to organize and group together all your financial activity. A customized chart of accounts for retail businesses is already pre-built to include commonly used accounts that independent retailers often use, and will exclude any type accounts that are frequently found in other industries.
This list is grouped into six different buckets, or categories.
Every single transaction will fall into one of these buckets. The six main categories are: Assets, Liabilities, Equity, Income, Cost of Goods Sold, and Expenses. We’ll explore each of these in greater detail below.
Chart of Accounts for Retail: Asset Section
Assets are the things your boutique owns. This often includes:
- Checking Account Balances
- Savings Account Balances
- Cash on Hand
- Undeposited Shopify Payments (and any other payment processor funds they’ve collected, but not yet deposited into your bank account.)
- Computer Equipment
- Shelving & Display Materials
Most of the time assets are THINGS you can physically hold that have a monetary value.
Keeping track of your assets is important because it shows what your boutique is worth.
Chart of Accounts for Retail: Liability section
Liabilities, on the other hand, represent what your boutique owes. This may include:
- credit card balances
- loans or lines of credit,
- sales tax you’ve collected from your customers and still need to pay to the state(s)
- balance on a large purchase that you financed through the vendor.
If your business owes money to someone, it should be reflected as a liability in your bookkeeping records.
Chart of Accounts for Retail: Equity Section
In simple terms, your equity is the “cash out” value of your business. If you were to take all your assets, and use them to pay off all your liabilities, your equity is what’s left over, or what you’d walk away with.
It represents the owner’s stake, or investment, in the business. Any time you put your personal money into the business, your equity increases. Any time you withdraw money for personal use, it decreases your equity.
Common accounts in the equity section include:
- Owner’s Contribution
- Owner’s Draws
- Retained Earnings
Chart of Accounts for Retail: Income Section
Now, let’s talk about the good stuff – income! Income is the money flowing into your boutique from your sales, but it can be more detailed that that.
Common accounts under this section include:
- Gross Product Sales
- Gift Card Sales
One of the best things about bookkeeping, is it can be as general or detailed as you want. One of the best and most helpful ways you can make it more detailed is to separate out your “Gross Product Sales” into the different divisions or departments of your store. It could instead look like
- Clothing Sales
- Accessories Sales
- Decor & Gift Sales
Or even more specific:
- Tops Sales
- Bottoms Sales
- Outerwear Sales
- And so on…
You get the point. Your financial statements should tell a story of where your money is coming from and where it’s going to. You have the ability to say how detailed that story is.
Chart of Accounts for Retail: Cost of Goods Sold Section
While your cost of goods sold, or COGS, is technically an expense, it’s super important to keep your inventory costs separate from your everyday operating expenses so you can get an accurate view of your profit margins.
It’s important to remember that when you purchase your inventory, that inventory is an asset. It becomes a COGS expense when you sell it.
If you choose to break out your gross sales into different categories under your Income section, I highly recommend you use those same categories in your COGS section. So it could look like:
- Tops COGS
- Bottoms COGS
- Outerwear COGS
- and so on…
This allows you to accurately compare the profit margin of each division/department in your store to see what is the most profitable area in your business.
Sure, you can probably review all of this information directly in your POS system (or at least you should be able to – if not, it might be a good time to upgrade systems). But, it can be super helpful having all of this financial info in one place.
Another one of the best things about bookkeeping is that nothing is set in stone. If you’re just getting the hang of bookkeeping, start simple. Just use “gross product sales” and “COGS” and group everything together. Once you feel confident in your ability, you can always start detailing things out later.
Chart of Accounts for Retail: Expense Section
These are the everyday expenses that keep your boutique running, and this will likely be your largest section in your chart of accounts. Having a detailed & industry specific expense section helps you see where your money is going and where you can make smart financial decisions.
Common expense accounts include:
- Advertising & Marketing
- Bank Fees
- Event Expenses
- Office & Store Supplies
- Meals Expenses
- Merchant Service Fees
- Rent Expense
- Payroll Expenses
- Travel Expenses
Again, this list can be as detailed or generic as you want. If you want subcategories under Advertising for “Facebook Ads” and “Print Ads” – do it! Think about the information that would be helpful for you to see, and make those changes.
A Custom Chart of Accounts for Retail Boutiques!
If you’re ready to take the plunge and want a head start on setting up your Chart of Accounts, I’ve got a free download just for you.
It’s a boutique-specific Chart of Accounts template, custom-tailored to make your bookkeeping journey a breeze. You can grab it right here!
If you’re setting up a brand new Quickbooks Online account, you can actually import this right into your QBO account. Just delete the chart of accounts that’s automatically created for you before you start using it (seriously, nobody needs the 200+ categories they automatically create for you) and start fresh with this one!
If you’re already using QBO (or any other bookkeeping software) you can still edit it to fit this template.
Setting up a clean & simple Chart of Accounts is an essential part of having an easy to use bookkeeping system. It’s not just about numbers; it’s about understanding your boutique’s financial health and making informed decisions that drive your boutique forward.
Remember, you’ve got this! If you want some additional hand holding to setup an easy to use bookkeeping system, then apply for my setup & training program where I will complete your QBO setup for you (including creating this custom chart of accounts!), and train you on exactly what you need to be doing to maintain it going forward.
Schedule your initial coffee chat consultation today and start to feel more confident in your DIY bookkeeping abilities!
Hi, I'm Megan!
Bookkeeping for the retail industry has some unique complexities that take extra time to manage to ensure accuracy. At Finding Freedom Financial Services, I provide done-for-you bookkeeping services for boutique owners that accurately track these complexities for you so you can have more time and focused energy to dedicate to running your stores. If you’re ready to get your time back, apply to work with me today!