Setting up accounting for a new business: chart of accounts, document flow and an auditable process
Quite a few businesses start out by keeping receipts in a box and handing them to an accounting firm to catch up just before the tax deadline. That can work for a while, but as transactions grow, lost documents and entries posted to the wrong category become a cost paid later: time spent on corrections, fines, and figures that management cannot use to make decisions.
Setting up an accounting system from day one does not have to be complicated or expensive. What matters is a clear structure in 4 areas: the chart of accounts, the document flow, keeping the business's money separate from personal money, and a closing cycle that can realistically be completed every month.
Why set up your accounting system from day one
Accounting is more than a management tool; it is also a legal duty. The Accounting Act B.E. 2543 (2000) requires juristic persons such as limited companies and registered partnerships to keep complete and accurate accounts, to have a bookkeeper who meets the prescribed qualifications, and to keep their accounts and supporting documents for at least 5 years.
A good system therefore helps in two ways at once: the business complies with the law without a rush to fix problems at year end, and management sees profit, cash flow and overdue receivables in time to act.
Design a chart of accounts that fits the business
The chart of accounts is the complete list of accounts a business uses to record its transactions. It is usually divided into 5 main categories, each with a number prefix so that accounts are easy to find and group.
| Category | Example accounts |
|---|---|
| 1 Assets | Cash, bank deposits, trade receivables, inventory, equipment |
| 2 Liabilities | Trade payables, withholding tax payable, loans |
| 3 Equity | Registered capital, retained earnings |
| 4 Revenue | Sales revenue, service revenue, other income |
| 5 Expenses | Cost of sales, salaries, rent, marketing expenses |
The principle to follow is detailed enough for management to see what it needs to track, but not so detailed that the person recording entries picks the wrong account. If you want to see results by branch, team or product line, use dimensions or project codes in the accounting software rather than opening new accounts again and again, which bloats the chart of accounts and makes it hard to maintain.
Set a document flow that can be traced back
A good audit trail means every figure in the financial statements can be traced back to its source document. There are generally two main sides.
- Sales: quotation → invoice or tax invoice → receipt → record the payment and reconcile it with the bank statement
- Purchases: purchase requisition → purchase order → goods or work received note → supplier's invoice → payment voucher, with a withholding tax certificate whenever tax is withheld
Each type of document should carry a continuous sequence of numbers, show who prepared it and who approved it, and be stored as both the original and a scanned copy in the same place, so it can be found quickly when the auditor or a tax officer asks to see it.
Keep business money separate from personal money
The most common problem in a new business is using one bank account for both personal and company matters, which makes it impossible to tell which items are business expenses. These are the practices to put in place from the start:
- Open a bank account in the company's name and use it only for the business's receipts and payments.
- If a director pays on the company's behalf, complete an advance claim with the supporting documents attached, then record it clearly either as a loan from the director or as a reimbursement.
- Set up a petty cash float with a clearly named custodian, and replenish it against a complete set of documents every time.
Close the books every month
A monthly close means problems are found early, while they are still easy to fix. The main steps to complete every month are:
- Reconcile every bank account with its statement.
- Review outstanding receivables and payables, broken down by age.
- Check that the input tax, output tax and withholding tax reports match the returns actually filed.
- Record accrued and prepaid expenses in the right period.
- Produce profit and loss and cash flow reports for management to review.
Checklist for starting your accounting system
- A chart of accounts agreed between management and the bookkeeper
- Sales and purchase document forms with continuous numbering
- Clearly named approvers for expenses, with clear approval limits
- Business bank accounts kept separate from personal accounts
- A place to keep original documents and scanned files where they can be searched
- A calendar of monthly and annual tax filings
- A monthly closing cycle and management report
Frequently asked questions
Does a small company with only a few transactions still need a bookkeeper?
Yes. Every juristic person must have a bookkeeper who meets the qualifications set by law, whether it has many transactions or few. The bookkeeper can be one of the company's own staff or an outside service provider.
How long must accounting documents be kept?
The accounting law requires accounts and supporting documents to be kept for at least 5 years. In practice, documents that could be relevant to a tax audit or a dispute should be kept for longer.
Should we use accounting software from the very start?
In most cases, yes. Software enforces document numbering, produces tax reports and keeps a history of changes from the outset. Moving from paper ledgers or spreadsheets later usually takes more time than getting it right at the start.
Let us help you set up your accounting system
The accounting advisory team at Kerwin & Vance helps design your chart of accounts, document flow and closing cycle around the way your business actually works. Find out more about our Accounting & Reporting services, or book a consultation with us.