A Chart of Accounts (COA) is a financial and organizational tool that displays every account in an accounting system and provides information on the financial activities of the firm. It is an important aspect of bookkeeping in the entertainment sector. The entertainment industry encompasses various sectors, including film, music, book publishing, and gaming, with over $2 trillion in global Revenue. Each industry has its unique COA, detailing all the accounts implicated in its business’s daily activities, providing a general understanding of the nature of the organization. Bookkeeping in the entertainment industry involves setting up a reliable, effective bookkeeping system to ensure staying within the production budget and making the most money possible. The sector requires two levels of bookkeeping and accounting: outside accounting, which includes expenses for operational salary, human resources, rent, utilities, and office equipment and supplies, and inside accounting, which involves recording costs in the production budget, including performers, stage hands, set builders, grips, and gaffs.
The Role of Chart of Accounts in Bookkeeping for the Entertainment Industry
The entertainment industry allows for accurate recording and tracking of expenses and revenues from different sources such as ticket sales, streaming, merchandise sales, and more. A well-organized chart of accounts is vital for the entertainment industry. As mentioned, it helps list every arrangement in an accounting system, providing information on the company’s financial transactions. With the help of the chart of accounts, bookkeepers can keep track of the company’s financial performance, identify areas of improvement, and make informed business decisions.
Chart of Accounts Structure for the Entertainment Industry
The chart of accounts structure for the entertainment industry is similar to other industries. However, some accounts are specific to this sector. For instance, revenue accounts may include box office sales, streaming royalties, merchandise sales, and licensing fees. Expenses accounts may include talent payments, production costs, marketing expenses, and royalties. As the entertainment industry evolves, new accounts may be added to reflect the changes in Revenue and expenses.
Using Sub-Accounts in Chart of Accounts for Better Organization
The entertainment industry is diverse, and companies in this sector may have various revenue streams and expenses. Using sub-accounts in the chart of accounts can help categorize and organize the different sources of Revenue and expenses. For instance, under the revenue account, box office sales may have sub-accounts such as domestic box office, international box office, and advance ticket sales. Similarly, under expenses, talent payments may have sub-accounts such as lead actor payments, supporting actor payments, and music composer payments. Using sub-accounts allows for better tracking and analysis of financial data.
Tracking Cost of Productions with Project-Based Accounting
In the entertainment industry, companies may have multiple ongoing productions with different budgets and timelines. Project-based accounting allows bookkeepers to track the cost of each output separately. This involves creating a chart of accounts for each project, detailing its expenses, revenues, and associated assets. By tracking the cost of each production separately, bookkeepers can identify which tasks are profitable and which ones require adjustments to improve profitability.
Accrual Accounting in the Entertainment Industry
The entertainment industry often deals with Revenue and expenses that span several accounting periods. Accrual accounting allows bookkeepers to record Revenue and expenses when earned or incurred, regardless of when the cash is received or paid. This provides a more accurate picture of the company’s financial performance, especially when dealing with long-term contracts and royalties.
Using Accounting Software for Efficient Bookkeeping
The entertainment industry is fast-paced, and bookkeepers must keep up with the company’s financial transactions in real time. Accounting software can help automate bookkeeping processes like data entry, invoicing, and reconciliation. It also provides real-time financial reports, allowing bookkeepers to promptly identify areas that require attention. With the help of accounting software, bookkeepers can save time, reduce errors, and focus on more critical tasks such as financial analysis and planning.
Chart of accounts for an entertainment industry business:
- 1010 Cash
- 1020 Accounts Receivable
- 1030 Prepaid Expenses
- 1040 Equipment
- 1050 Furniture and Fixtures
- 1060 Leasehold Improvements
- 2010 Accounts Payable
- 2020 Accrued Expenses
- 2030 Taxes Payable
- 2040 Deferred Revenue
- 2050 Loans Payable
- 3010 Common Stock
- 3020 Retained Earnings
- 4010 Ticket Sales
- 4020 Merchandise Sales
- 4030 Sponsorship Revenue
- 4040 Licensing Revenue
- 4050 Royalty Revenue
- 4060 Other Revenue
Cost of Goods sold:
- 5010 Cost of Ticket Sales
- 5020 Cost of Merchandise Sales
- 5030 Cost of Sponsorship Revenue
- 5040 Cost of Licensing Revenue
- 5050 Cost of Royalty Revenue
- 5060 Other Costs of Goods Sold
- 6010 Rent
- 6020 Utilities
- 6030 Salaries and Wages
- 6040 Professional Fees
- 6050 Advertising and Promotion
- 6060 Insurance
- 6070 Repairs and Maintenance
- 6080 Depreciation and Amortization
- 6090 Travel and Entertainment
- 6100 Other Expenses
This chart includes typical accounts for an entertainment industry business, such as ticket sales, merchandise sales, sponsorship revenue, licensing Revenue, and royalty revenue. It also contains accounts for costs of goods sold, including ticket sales, merchandise sales, and other prices.
Expenses are categorized as rent, utilities, salaries and wages, professional fees, advertising and promotion, insurance, repairs and maintenance, depreciation and amortization, travel and entertainment, and other expenses. These categories can be further broken down into sub-accounts as needed.
In addition, the chart of accounts includes typical asset accounts like cash, accounts receivable, prepaid expenses, equipment, furniture and fixtures, and leasehold improvements. It also provides liability accounts like accounts payable, accrued expenses, taxes payable, deferred Revenue, and loans payable.
This sample chart of accounts can be customized to fit the specific needs of a particular entertainment industry business. It can also be used as a starting point for creating a new chart of accounts for a company in this industry.
For Book Meeting:
In conclusion, the entertainment industry is a dynamic sector that requires accurate and organized bookkeeping. A well-organized chart of accounts is essential for accurately tracking Revenue and expenses, identifying improvement areas, and making informed business decisions. Bookkeepers in this sector must be familiar with project-based accounting, accrual accounting, and accounting software to manage the company’s financial data efficiently. As the entertainment industry evolves, bookkeepers must keep up with new revenue streams and expenses to ensure accurate financial reporting.