chart of accounts in accounting

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. With ZarMoney accounting software, you have flexibility when creating your custom chart of accounts.

What is a chart of accounts in accounting?

A chart of accounts (COA) is a financial, organizational tool that provides an index of every account in an accounting system. This provides an insight into all the financial transactions of the company. Here, an account is a unique record for each type of asset, liability, equity, revenue and expense.

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In short, it is an organizational tool that provides a digestible breakdown of all the financial transactions that a company conducted during a specific accounting period, broken down into subcategories. Accounts determining performance are called profit and loss or income statement accounts, because they appear on reports of the same name. (You probably predicted that.) Balances for these accounts are calculated over a specified timeframe or accounting period, such as a month, quarter, or year. A chart of accounts is a list used for organizing financial statements, transactions, and codes of a business. It categorizes them so they are easy to find and use when generating reports. A COA is designed to provide a view of an organization’s financial situation and health, using a delineated means to separate assets, liabilities, revenue, and expenditures.

chart of accounts in accounting

You will be much happier deleting a few sample transactions or starting over with a new test business than rebuilding your real accounting records if things don’t work out. This relationship between debits and credits and the need to keep both sides of the accounting equation in balance led more than five centuries ago to invention of double-entry accounting. Every transaction starts out as a debit or credit posted to one of the accounts in your chart of accounts. But to balance your books, it must be offset by an opposite credit or debit to a different account. A chart of accounts is integral to your bookkeeping, accounting, and financial reporting. They’re like a map that helps you categorize your transactions correctly and group similar accounts together for reporting.

Ways small businesses use the chart of accounts

Like QuickBooks, Sage Intacct is an ERP trusted by all kinds of businesses. Accounting solutions handle your CoA for you, which makes it super simple and easy to set up. Expenses chart of accounts are all the non-debt money that you need to spend in order to keep your business running. Income or revenue account numbers usually begin with reference number 4.

An expense account balance, for example, shows how much money has been spent to operate your business, whereas a liabilities account balance shows how much money your business still owes. There is really no need to know the amount of purchases of “Chips/Nuts”, “Gas for Beer”, “Beer Freight”, “Ice”. The information the management committee needs most is the overall Gross Margin in percent terms. If bar sales and purchases are divided into alcoholic drinks, and “other”, then it becomes possible to see the overall gross margin split into “alcoholic drinks” and “other”. This is as much detail as is needed in a profit and loss statement. If more information is needed it may be queried from the financial database, or the source documents (e.g. invoices).

Account types

Regulation S-X, Regulation S-K and Proxy statement In the U.S. the Securities and Exchange Commission prescribes and requires numerous quarterly and annual financial statement disclosures. A large portion of the required disclosures are numeric and must be supported by the Chart of accounts. The Spanish generally accepted accounting principles chart of accounts layout is used in Spain. The French generally accepted accounting principles chart of accounts layout is used in France, Belgium, Spain and many francophone countries.

These sub-types will decide which account in the corresponding financial statement the transaction will be classified under. Using a chart of accounts will help your organization keep its financial records organized. It allows users of financial statements to come up with a clear insight into the company’s financial health. Firstly, identify the structure of your business, whether it is a sole trading business, partnership, or corporation.

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