If you run an agency (marketing, creative, development, consulting firm), your accounting is more complex because you:
- Handle multiple clients at the same time
- Receive retainers or upfront payments
- Work with contractors or a team
- Manage both project-based and recurring income
👉 Your COA should help you clearly track:
- Client income
- Project costs
- Team/contractor expenses
- Profit per client or project
✅ Step 1: Set Up Your Income Accounts
Service Income (Use Design Income)
Your main revenue account.
Why you need it:
- Tracks all client payments (projects + retainers)
- Used in Profit & Loss reports
👉 Rename “Design Income” to:
- Service Income
- Agency Revenue
Sales Return (Optional)
Why you need it:
- Tracks refunds, discounts, or client adjustments
Not needed if:
- You rarely issue refunds
Other Income (Optional)
Examples:
- Interest Earned
- Gain/Loss on Sale of Assets
Why it’s optional:
- Keeps your main agency revenue clean
✅ Step 2: Set Up Your Asset Accounts
Bank
Your main business account.
Why you need it:
- Tracks all cash inflow and outflow
Accounts Receivable
Money clients owe you.
Why you need it:
- Agencies often invoice multiple clients
- Helps track unpaid retainers or project balances
👉 Very important for managing cash flow.
Undeposited Funds (Optional)
Why you need it:
- Helps reconcile payments from Stripe or grouped payouts
Cash (Optional)
Why you need it:
- Only if you accept physical payments
✅ Step 3: Set Up Your Liability Accounts
Accounts Payable
Money you owe vendors or tools.
Why you need it:
- Tracks unpaid subscriptions, services, or suppliers
Unearned Revenue
Client payments received before work is done.
Examples:
- Monthly retainers paid in advance
- Project downpayments
Why you need it:
- Prevents overstating income
- Keeps reporting accurate
👉 Very important for agencies with retainers.
Expense Claims Payable
Why you need it:
- Tracks reimbursements to team members
Example:
- Staff paid for ads or tools
Salary Payable (Optional)
Why you need it:
- Tracks unpaid salaries
Income Tax Payable
Why you need it:
- Keeps tax obligations separate
✅ Step 4: Set Up Cost of Goods Sold (COGS)
This is where agencies often make mistakes.
👉 Rule:
- If the cost is directly tied to a client/project → COGS
- If it’s general business expense → Expense
Cost of Goods Sold (Contractor Expenses)
Examples:
- Freelancers you hire per project
- Designers, developers, editors
Why you need it:
- Tracks direct project costs
- Helps calculate real profit per client
Freight In / Delivery (Optional)
Why you need it:
- Only if your agency handles physical deliverables
✅ Step 5: Set Up Your Expense Accounts
These are your operating costs (not tied to a specific client).
Wage & Salary Expenses
Why you need it:
- For full-time employees
👉 Important distinction:
- Employees → Expense
- Project-based freelancers → COGS
Sales & Marketing Expenses
Examples:
- Facebook Ads
- Lead generation tools
Why you need it:
- Tracks how you acquire clients
Office Expenses
Examples:
- Software (Slack, Notion, Adobe)
- Subscriptions
Rent Expenses
Why you need it:
- Office or coworking space
Utilities Expenses
Why you need it:
- Internet, electricity
Travel & Meals
Why you need it:
- Client meetings, team activities
Bank Charges / Stripe Fee
Why you need it:
- Tracks transaction and payment fees
Accounting & Audit Fees
Why you need it:
- Professional financial services
❌ Accounts You Usually DON’T Need (And Why)
Inventory / Finished Goods Inventory
Why not applicable:
- Agencies sell services, not products
Purchases (for products)
Why not applicable:
- No physical goods involved
Manufacturing Overhead
Why not applicable:
- Not a production business
Complex Inventory Systems
Why not applicable:
- Adds unnecessary complexity
⚙️ Optional Advanced (Use Only If Needed)
- Bad Debt → if clients don’t pay
- Gain/Loss on Foreign Exchange → international clients
- Bank Loans → business financing
- Depreciation → equipment (laptops, etc.)
🚀 Simple Setup Summary
If you want a clean agency setup, start with:
Income
- Service Income
Assets
- Bank
- Accounts Receivable
COGS
- Contractor Expenses
Liabilities
- Accounts Payable
- Unearned Revenue
Expenses
- Salaries
- Marketing
- Office Expenses
✨ Final Tip
For agencies:
Profit is not just about revenue—it’s about managing client cost vs team cost
The most common mistake:
- Recording all costs as expenses (instead of separating COGS)
👉 This makes profitable clients look unprofitable (and vice versa).