Accounts

Chart of Accounts

Olawunmi Omosanya - 11th February, 2019 @ 07:57 AM

What is a Chart of Accounts:

A chart of accounts (COA) is a listing of each account a company owns, along with the account type and account balance, shown in the order the accounts appear in the company’s financial statements. “Chart of accounts” is the official accounting term for the display of this information, which includes both balance-sheet accounts and income-statement accounts.

An account is a unique record for each type of asset, liability, equity, revenue and expense. The chart of accounts is a financial organizational tool that provides a complete listing of every account in the general ledger of a company, broken down into subcategories. Each chart in the list is assigned a multi-digit number to help identify the account type (e.g., all asset accounts might start with the number 1). Typically, a COA contains the accounts’ names, brief descriptions and identification codes.

Using a COA, balance sheet accounts are listed first, that is, assets, liabilities and shareholders' equity. Accounts in the income statement — revenues and expenses — are presented next.

For a small corporation, the chart of accounts might include these sub-accounts under the assets account:

  • cash
  • savings account
  • Petty cash balance
  • Account receivable
  • Undeposited funds
  • Inventory assets
  • Prepaid Insurance
  • Vehicles
  • Buildings

Liabilities account may have sub-accounts, such as:

  • The company credit card
  • Accrued liabilities
  • Accounts payable
  • Payroll Liabilities
  • Notes payable

Shareholders' equity can be broken down into the following accounts:

  • common stock
  • preferred stock
  • Retained earnings

Within the accounts of the income statement, the revenues and expenses accounts could be broken into operating revenues, operating expenses, non-operating revenues and non-operating losses. In addition, the operating revenues and operating expenses accounts might be further organized by business function and/or by company divisions. Many organizations structure their chart of accounts so that expense information is separately compiled by department; thus, the sales department, engineering department and accounting department all have the same set of expense accounts. Examples of expense accounts include cost of goods sold (COGS), depreciation expense, utilities expense, wages expense, etc.

Even a small company could have dozens of accounts in its chart of accounts. The larger and more complex the company, the larger and more complex the chart of accounts will be, but accounting software makes it easy to categorize accounting entries correctly and maintain an accurate and organized chart of accounts.

Reporting requirements can affect how a company structures its chart of accounts, but it is important to keep the COA the same from year to year to make accurate comparisons of the company’s finances across time.

Here is a way to think about the chart of accounts as it relates to your own finances, which might help you better understand how it relates to a business. Say you have a checking account, a savings account and a certificate of deposit (CD) at the same bank. When you log in to your account online, you’ll typically go to an overview page that shows the balance in each account. Similarly, if you use an online program that helps you manage all your accounts in one place, like Mint or Personal Capital, what you’re looking at is basically the same thing as a company’s chart of accounts. You can see all your assets and liabilities, all on one page.


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