Accounting foundations
Designing a chart of accounts for a Bangladesh trading business
How to structure a general ledger that produces useful management reports and a filable VAT return, without ending up with 400 accounts nobody uses.
Most charts of accounts fail in one of two directions. Either they are too coarse — one account called 'Expenses' — and produce reports that tell you nothing, or they are too fine, with a separate account for every supplier, and produce reports nobody can read. The useful middle is narrower than people expect.
Start from the reports you actually need
The chart exists to produce the profit and loss, balance sheet and VAT return. Work backwards from those. If a line will never appear separately on a report anyone reads, it does not need its own account — it needs to be a dimension on a transaction instead.
This is the single most useful principle available. Separate accounts answer 'what kind of cost is this?'. Dimensions — cost centre, branch, project — answer 'who incurred it?'. Businesses that confuse the two end up with accounts like 'Office Rent — Chittagong Branch', and then need thirty more the moment they open a fourth branch.
A workable top-level structure
Five top-level classes, numbered so that sort order matches report order:
| Range | Class | Notes |
|---|---|---|
| 1000–1999 | Assets | Current first, then non-current. Inventory and receivables get real sub-structure. |
| 2000–2999 | Liabilities | Include VAT payable, withholding payable and supplier balances as distinct groups. |
| 3000–3999 | Equity | Capital, drawings and retained earnings per owner where there is more than one. |
| 4000–4999 | Revenue | Split by the lines of business you actually manage separately. |
| 5000–5999 | Cost of sales | Kept apart from operating expenses so gross margin is real. |
| 6000–6999 | Operating expenses | Grouped by function, not by supplier. |
Leave gaps. Numbering accounts 1000, 1010, 1020 rather than 1000, 1001, 1002 means you can insert an account where it belongs later instead of appending it to the end where it reads oddly forever.
The parts specific to Bangladesh
VAT needs more than one account
A single 'VAT' account is not enough. At minimum you need output VAT payable, input VAT receivable, and VAT deducted at source — held separately, because they settle differently and appear separately on the return. Businesses that net them into one account cannot produce the return without unpicking the account line by line.
Withholding is a liability, not an expense
Tax you deduct from a supplier payment is money you are holding on behalf of the treasury. It belongs in a liability account until it is deposited. Posting it to an expense account — which happens more often than it should — overstates cost and leaves the deposit with nowhere sensible to go.
Separate the import cost elements
If you import, freight, insurance, customs duty, port charges and C&F agent fees should each have an account, even though they all eventually land in inventory cost. You need them visible to work out landed cost per shipment and to answer the question of why this consignment cost more than the last one.
Sizing it
A trading business with one or two locations rarely needs more than 120 to 180 posting accounts. If you are past 300 and still growing, it is worth checking whether you have accounts doing the work of dimensions.
Two practical constraints that keep it honest:
- Post only to leaf accounts. Group headers exist to organise the report, not to receive transactions. Allowing both produces balances that appear in two places.
- Every account should have a written description of what belongs in it. If the person entering a bill cannot tell which of two accounts to use, the two accounts should probably be one.
Changing it later
You will get some of this wrong, and that is fine as long as restructuring does not orphan history. Renaming an account, moving it under a different parent or deactivating it should leave its posted transactions intact and still reportable. What you want to avoid is deleting accounts that have history, or merging two accounts in a way that makes prior-period comparatives meaningless.
The chart you design in month one will not be the chart you use in year three. Design it so it can be changed rather than trying to get it permanently right.