Chart of accounts

A chart of accounts (COA) is a list of all your company’s accounts in the general ledger, divided into subcategories, registered in a specific accounting period. For example, when your business has any transaction — an invoice from a client paid, paying for the rent or getting a bank loan — all of this must be registered in the chart of accounts.

What is the structure of a chart of accounts?

The list divides all the accounts by:

  1. Where they belong, either to assets, liabilities or equity.
  2. What financial statement they go to, either balance sheet or income statement.

This all can be further subdivided, meeting your company’s specific needs.

Here is what a chart of accounts includes.

Assets:

  1. Cash;
  2. Petty cash;
  3. Marketable securities;
  4. Accounts receivable;
  5. Allowance for doubtful accounts;
  6. Prepaid expenses;
  7. Inventory;
  8. Fixed assets;
  9. Accumulated depreciation, etc.

Liabilities:

  1. Accounts payable;
  2. Accrued liabilities;
  3. Taxes payable;
  4. Wages payable;
  5. Notes payable, etc.

Equity:
1. Common stock;
2. Preferred stock;
3. Retained earnings.

Revenue:
1.  Revenue;
2. Sales returns and allowances.

Expenses:
1. Costs of goods sold;
2. Bank fees;
3. Depreciation;
4. Advertising;
5. Payroll tax;
6. Rent;
7. Supplies;
8. Wages;
9. Utilities, etc.

Each account typically has a type, a brief description and an identification code. Account numbers usually have five or more digits and each digit represents a division of a company. For example, the first digit 1 means assets, while the first digit 2 identifies liabilities, etc.

A chart of accounts’ example

Here is a partial listing of how the accounts are distributed in a chart of accounts. A gap between the account number leaves space for adding accounts in future.

Number (identification code) Account description Account type Financial statement
101 Cash Assets Balance sheet
102 Accounts receivable Assets Balance sheet
103 Insurance Assets Balance sheet
201 Accounts Payable Liabilities Balance sheet
301 Jack Morris equity Equity Balance sheet
401 Fees earned Revenues Income statement
501 Wages Expenses Income statement
502 Rent Expenses Income statement
503 Utilities Expenses Income statement

Online accounting can classify the accounts and give out the numbers to them automatically for you.

How to deal with a chart of accounts?

  1. Keep the chart of accounts consistent. When you start a business, try to think about the most detailed and convenient chart of accounts’ structure for you — this will keep the accounts neat from the beginning and will make the future comparisons of accounting data easier.
  2. Go on optimising your chart of accounts. Do not hesitate to review the structure of your chart of accounts, if you see that it has become clumsy or inconvenient and you need to add more types of accounts for better bookkeeping.
  3. Make changes timely. When making changes, you can easily add any accounts at any time, but if you delete an account — it is better to do it at the end of the accounting period.
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