Onto the P&L accounts. The goal with the income (4000) and COGS (5000) accounts is to create a matching wherever possible; a Manufacturing Income account should have a corresponding Manufactured COGS account to allow for easy gross profit analysis. In general, all COGS accounts should be direct expenses, expenses direct to the products and services that the entity produces. Anything that is either purely overhead or not directly attributable to a particular product or service produced by the facility should be classified under the SG&A (6000) sections.
Given this basic structure, the next objective was to build into the chart of accounts the ability to group expenses, mostly in the SG&A sections, into logical groupings which allow for both detail and consolidation. This is accomplished on 2 levels. First, expenses are grouped into large categories such as “Selling” and also within a larger heading, there are general categories such as “Utilities” For instance, there are separate accounts for local phone and long distance, but they “roll up” into one account called “Telephone”, which, in turn, “rolls up” into “Admin”. If a concise P&L is needed or if detail is needed, both needs are accommodated.