Prior to undertaking any of the steps detailed in this post about your chart of accounts, you should have read Part 1.  It is important that you understand how these changes are processed in your accounting system and the impact they may have on previous transactions.

The best way to start the process to clean up your chart of accounts is to simply print out a trial balance from your accounting system.  This report will list all the account names and any amounts that have been allocated to the accounts.  Make sure this report also includes accounts that have zero balance.

Once you have the trial balance undertake the following steps to help you clean up your chart of accounts.

  • Identify any accounts that have a zero balance and if not needed you should delete them or make them inactive.  Usually inactive means that the account still exists but while it is designated as inactive, amounts cannot be allocated to it and the account does not appear on any reports. Again, make sure you understand how you accounting system processes these changes.
  • Identify any accounts that have a relatively small balance.  If not needed then transfer the amount to another account and either delete the account or make them inactive.
  • Identify accounts that may have had only a small number of transactions.  If not needed then transfer the amount to another account and either delete the account or make them inactive.
  • Check for accounts that may contain similar type of transactions and consider deleting or making the accounts in active after you have transferred the balance to another account.
  • Review the names of all accounts and check to see whether they should be changed to better reflect the transactions that are allocated to it and appear in the financial reports.
  • If you receive grants or track projects separately you may find that there are some project accounts that have a balance that is left over after the completion of the project.  It the project accounts are no longer required then you should delete them or make them inactive.
  • Check for any accounts that may have an amount allocated to them but there have not been any transactions made during the year.  If not needed then transfer the amount to another account and either delete the account or make them inactive.

These are the main steps you can follow to help you clean up your chart of accounts.

As a final test to see how well you have done with the job, print out the usual financial reports and compare them to the previous reports before any changes were made.

In addition to the reports being easier to read they should better reflect the financial information and help you and your board or committee of management analyse the reports and make appropriate decisions.