Bookkeeping

Chart of Accounts

Every set of books has a Chart of Accounts (CoA). This is a hierarchical classification system for your money. How you structure your books is (in principle) completely up to you. There are a few general guidelines.

At the top level of most CoAs you will typically find the following accounts (with the Dutch equivalent between parentheses).

• Income (Inkomen)
• Expenses (Uitgaven)
• Assets (Activa)
• Liabilities (Passiva)
• Equity (Eigen Vermogen)

Depending on your taste Equity can also appear as a subcategory to Liabilities.

The goal of a CoA is to provide you with a way to quickly visualize the flow of money. It answers the following questions.

• Where does it come from?
  • Income can come from an hourly wage, from a monthly job payment, from dividends or interests from investments. These all bring money into your system;
• What brings it with?
  • Liabilities, be it a credit or a loan, produces a (one-time) income stream by financing an expense. It brings with it a legal obligation to repay at some later date and may include regular payments of interest;
• What is the effect on my system?
  • it changes your Equity. Over a period of time this change is called a Profit if more money is flowing in than leaving or a Loss if more money is flowing out than in;
• Where does it leave?
  • Expenses are things or services you buy. It's your cost of living: expenses for food, shelter, clothing, transportation, entertainment, etc.;
• What takes it with?
  • When liabilities are obligations that a stream of money brings into your system, Assets are its opposite. They take obligations out of your system.

Double-entry accounting

Double-entry accounting simply means that this method accounts for every transaction where the money came from and where it is going. It makes "two entries"!

I highly recommend reading Principles of Accounting with Ledger in the Ledger manual. It very clearly explains the principles of double-entry accounting.

Example Chart of Accounts

Here is, roughly translated and slightly expanded, the Chart of Accounts I currently use in my own bookkeeping in Ledger (ledger-cli). I will use the same notation as Ledger uses to indicate deeper parts of the hierarchy by separating the parent account and the child account with a colon (:).

On the balance side:

Assets
  Liquid
    Cash
    Bank Checking
    Bank Savings
  Real Estate
  Investments
    Bonds
    Exchange Traded Funds
    Exchange Traded Commodities
    Shares
  Prepaid Invoices
Liabilities
  Credit Card
  Mortgage
  Open Invoices*
Equity:Opening Balances

Notes:

• Assets:Prepaid Invoices contain subdivisions, one for each supplier; I hardly use this;
• Liabilities:Open Invoices: these are either unpaid or on an ongoing payment schedule and thus partially paid. These also have subdivisions, one for each supplier.

On the profit and loss side:

Income
  Wages
  Sales
  Rental Income
  Reimbursements
  Gifts
  Interests Received
  Dividends
Expenses
  Cash*
  Food
    Groceries
    Eating Out
  Taxes*
    Dividend Tax
    Income Tax
  Services
    Accountant
    Notary
    Banking Services
  Health
    Clothes and Shoes
    Insurance:Health Insurance
    Physician
    Dentist
    Hairdresser
  Shelter
    Interest on Mortgage*
    Insurance:Home Insurance
    Taxes:Municipal Tax
    Rent
    Energy
    Water
    Furnishings
    Maintenance
  Communications
    Phone Services
    Internet Access
    Devices
  Studies
    Lessons
    Media
    Subscriptions
  Entertainment
    Subscriptions
      Newspaper
      Streaming Services
    Going Out
    Entrance Fees
    Pets
      Veterinarian
      Feed
      Furnishings
  Transportation
    Public Transport
    Car
      Fuel
      Rental
      Taxes:Road Tax
      Insurance:Liability Insurance
      Maintenance
      Parking
      Purchase
      Fines
      Toll
    Bicycle
    Plane
    Insurance:Travel Insurance
    Travel Expenses
  Charity
    Gifts
    Tips
    Donations
  Other Expenses
    Payment Differences

Notes:

• Expenses:Cash: I can use this for small cash expenses without proper categorization. It's usually to correct the amount shown in Assets:Liquid:Cash.

• Expenses:Taxes: This category only shows part of the taxes I pay.

  In other categories, there are also taxes paid. For example in Expenses:Transportation:Car:Taxes:Road Tax or Expenses:Shelter:Taxes:Municipal Tax. By coding the accounts this way I easily filter out how much taxes I pay in ledger-cli with ledger bal :Taxes:

  Note that the same principle applies to insurance.

• Expenses:Shelter:Interest on Mortgage: payments of your mortgage usually contain a part interest and a part repayment. The repayment part goes to decrease the absolute amount in Liabilities:Mortgage and is not an expense.