chart of accounts

Alternatively, you could press “CTRL+A” on your keyboard while using QuickBooks. To get you up to speed regarding what a chart of accounts is, how they’re used, and why they’re vital for your business’s success, we put together this comprehensive guide. In it, we will show you why a chart of accounts isn’t just a “nice-to-have” tool, but often an organizational necessity if you want to grow your business and manage multiple accounts at scale. The department code is typically a two-digit code that identifies a specific department such as accounting, marketing or production within the company. Different bookkeeping platforms have different ways of approaching the same functionality, and it’s important to organize your COA structure to align with your accounting software’s capabilities. It’s cheaper and more efficient to organic your COA than switching to a new accounting system.

chart of accounts

Occasionally, you may find a chart of accounts that is organized by department. Some companies, especially larger businesses, may require that each department put together its own chart of accounts, using the same types of sections. This can make it easier for an organization to gain a clearer image of how various departments like sales, operations, and marketing are operating individually if they have their own departmental budgets. In computerized accounting systems – many of the software companies provide a standard chart of accounts customized to suit different types of businesses. There are five primary types of accounts, i.e., asset, liability, equity, income and expense.

Make Separate Accounts For Important Month

The structure determines the level of detail available for financial reporting. The chart of accounts is therefore the foundation of the financial statements. This point is not meant to be a discourse on project costing, but to create awareness that the chart of accounts must thoughtfully accommodate the organization’s approach to indirect costs.

  • The numbering follows the traditional format of the balance sheet by starting with the current assets, followed by the fixed assets.
  • By separating out your revenue, liabilities, assets, and business expenditures, a chart of accounts enables you to gain insight into the effectiveness of different areas of your business.
  • The better the organization of the COA, the more information that can be gleaned from the COA itself.
  • After going through the structure, set up your chart in a way where you have enough records, to document financial transactions.
  • Chart of accounts is simply a list of account names that a company uses in its general ledger for recording various business transactions.

Revenue from sales, revenue from rental income, revenue from interest income, are it’s common examples. Sales RevenueSales revenue refers to the income generated by any business entity by selling its goods or providing its services during the normal course of its operations. It is reported annually, quarterly or monthly as the case may be in the business entity’s income statement/profit & loss account. EquityEquity refers to investor’s ownership of a company representing the amount they would receive after liquidating assets and paying off the liabilities and debts. It is the difference between the assets and liabilities shown on a company’s balance sheet. COA helps companies prepare, maintain, and monitor their financial accounts as per the standard accounting norms.

Interest PayableInterest Payable is the amount of expense that has been incurred but not yet paid. It is a liability that appears on the company’s balance sheet. Fixed AssetsFixed assets are assets that are held for the long term and are not expected to be converted into cash in a short period of time.

At the end of the year, review all of your accounts and see if there’s an opportunity for consolidation. Document version control can help organizations improve their content management strategies if they choose the right approach, …

The Income Statement Accounts

This may influence which products we write about and where and how the product appears on a page. We believe everyone should be able to make financial decisions with confidence. The complete Swedish BAS standard chart of about 1250 accounts is also available in English and German texts in a printed publication from the non-profit branch BAS organisation. “Fuel and Diesel”, “Rego for Car”, and “Car Maintenance” in the expenses section. “Players travel” and “players traveling” in the cost of sales section.

  • If you create too many categories in your chart of account, you can make your entire financial reports difficult to read and analyze.
  • Secondly, it is essential to carry out with the numbering, as it can help us pick any account based on its number.
  • Good month-end financial reports are made accurate with large non-cash journal entries.
  • The exact configuration of the chart of accounts will be based on the needs of the individual business.

Other expense refers to expenses for your company outside your business, such as the sale of an asset. Other income refers to what the company earns outside its normal business operations, which may include rent from buildings you own or the sale of stock. Your company’s overhead costs—or fixed costs—are costs such as payroll, rent, insurance and internet that it must pay for no matter what. Revenue or income is income your company would receive for normal, everyday business tasks such as professional fees, payment for services or products sold. Now let’s take a look at how these components come together to make up the University’s chart. For each of the seven ChartFields, you can see whether it is required on financial transactions and its format.

What Categories Are On The Chart Of Accounts?

Within the COA, accounts will be typically listed in order of their appearance in the financial statements. Typically, balance sheet accounts, including current assets and current liabilities, are listed first. A chart of accounts is a tool that gives you a clearer picture of where your business is financially, even on a department-by-department basis.

For example, sales would be listed before non-operating income. In some cases, part or all of the expense accounts simply are listed in alphabetical order. The expense account is the last category in the chart of accounts. It includes a list of all the accounts used to capture the money spent in generating revenues for the business. The expenses can be tied back to specific products or revenue-generating activities of the business. This is followed by the income statement, which includes revenue and expense accounts.

If a new account is being created to track transactions separately that once appeared in another account, you must move the transactions already in the books to the new account. Make sure to leave a lot of room between accounts to add new accounts. For Example, number your Cash in Checking account 1000 and your accounts Receivable account 1100. This leaves a lot of room to add other accounts to track cash.

chart of accounts

Contact Toptal if you would like assistance taking this simple but incredibly impactful step raising your organization to the next level. If the amount of the journal entry is mixed in with the regular wage expense accounts, it can be difficult to see how much of the wage expense relates to cash payments and how much is accrued.

Adding And Removing Accounts From The Chart Of Accounts

You’ll notice there are some gaps in the numbers; that’s because there are certain parent accounts that don’t typically apply to service-based businesses like those run by entrepreneurs and freelancers. The following tips will help you set your chart of accounts up for success. When compiling data in your income accounts category, consider anything that brings money into the company, including things like interest income. Put another way, a chart of accounts is a lot like the game Jenga. If you take a block away from one section of your business, you have to add it back someplace else. In the end, the chart of accounts, the budget, and management preferences all must align in an effective accounting system. The concept makes sense, but it gets confusing when this entry hits the financials.

chart of accounts

However, it can be reduced to four in small organizations, while in large corporations, it can also be more than five. Furthermore, you may decide to structure your chart of accounts so that revenue and expenses is categorised according to business function, product line, or company division. That’s why a chart of accounts can be a beneficial addition to your financial analytics tools. Explore the definition of a chart of accounts and find out why a chart of accounts is important with our comprehensive guide. The chart of accounts is also the basis for all your accounting reports, so it will help you create your financial statements and file your tax returns. To make a chart of accounts, you’ll need to first create account categories relevant to your business, and then assign a four-digit numbering system to the accounts you create. While making a chart of accounts can be time consuming, it’s an important tool for understanding the financial health of your business.


Understanding double-entry accounting is crucial to keeping an accurate chart of accounts. To better understand this, consider your personal financial statement. You regularly use your checking account for your day-to-day expenses. For ease of use, a COA contains the list of accounts’ names, brief descriptions, account type, account balance and account codes for each sub-account. As you will see, the first digit might signify if the account is an asset, liability, etc. The chart of accounts is designed to be a map of your business and its various financial parts. Revenue accounts keep track of any income your business brings in from the sale of goods, services or rent.

This way, you never have to worry about tracking down a dollar amount from an old invoice or searching endlessly through pen-and-paper account records. Instead, you can pinpoint any account in seconds usingautomated AP solutionswith the click of a button. Most chart of accounts examples will follow a similar design as the one listed above. While this might prove useful for learning about how a chart of account is structured, a chart of accounts example says little about how it should be interpreted or its underlying logic. To get a better idea of what a chart of accounts is and what it looks like, refer to the following sample. Although no two charts will look identical, most will follow a basic framework that resembles what you see below, especially if you’re a small company with few vendors and a limited number of products.

Liability accounts are a record of all the debts your company owes. Liability accounts usually have the word “payable” in their name—accounts payable, wages payable, invoices payable. “Unearned revenues” are another kind of liability account—usually cash payments that your company has received before services are delivered. A liability is a present obligation of an entity to transfer an economic benefit .

Make Changes To Your Ledger Accounts

Unlike true wage expense, the $3,000 is a project costing entry that is not paid out in cash. Accordingly, the offset will not be cash, but rather a -$3,000 entry to an Indirect Expenses-Applied account. Build the accounts for management, not for GAAP and tax purposes.

Financial Clarity At Last: How To Reboot Your Chart Of Accounts Structure In 7 Steps

Below are examples of what types of transactions fit in each account. A chart of accounts is divided into categories; assets, liabilities, and equity make up the balance sheet, and revenue and expenses comprise the income statement. A chart of accounts is a list of accounts available for recording transactions in a company’s general ledger. Think of it as the filing cabinet for your small business’s accounting system. This helps keep track of money coming in and out of the company, especially when it’s time to file taxes. In short, it’s an index of all the financial accounts in your company’s general ledger. It allows you to break down all the transactions that your business made during a specific period into different subcategories.

Request a demo with ScaleFactor today to learn how its software can help you keep track of your accounts without all the annoying paperwork. All account names should have a clear title so everyone in the accounting department understands what each account is for, which helps to easily and correctly classify company transactions.

How To Improve Your Chart Of Accounts

So a Chart of Accounts is a list of accounts but not just any old list. The list of accounts represents what is considered to be the best for the type of business. There are many hundreds of accounts possible but only a few will be relevant to the business. For example, a football club is not likely to need an account for “Raw Materials” and a manufacturing firm is not likely to need an account for football program expenses. You can adjust your chart of accounts by adding or deleting general ledger accounts. Additionally, you can also rearrange the order of the accounts to suit your company’s needs. The organizations operating in many territories with a lot of departments usually have account numbers consisting of five or more digits.

Therefore, the COA starts with cash, moving on to liabilities and equity, and eventually finishing with revenues and expenses. The COA will include balance sheet entries of assets, liabilities and owner’s equity, and income statement’s expenses and revenue. The chart of accounts numbering will indicate the location of the listed account in the ledger. Within the five general types of categories of accounts, assets, liabilities, and equity comprise the balance sheet, or statement of financial position. The other two, revenue and expenses, together amount to the income statement, or statement of financial activity.