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From Wikipedia, the free encyclopedia
A
chart of accounts (
COA) is a created list of the accounts used by a business entity to define each class of items for which money or the equivalent is spent or received. It is used to organize the finances of the entity and to segregate expenditures, revenue, assets and liabilities in order to give interested parties a better understanding of the financial health of the entity.
The list can be numerical, alphabetic, or alpha-numeric. The structure and headings of accounts should assist in consistent posting of transactions. Each nominal ledger account is unique to allow its ledger to be located. The list is typically arranged in the order of the customary appearance of accounts in the financial statements, balance sheet accounts followed by profit and loss accounts.
Nomenclature, classification and codification ¶
Each account in the chart of accounts is typically assigned a name and a unique number by which it can be identified. (Software for some small businesses may not require account numbers.) Account numbers are often five or more digits in length with each digit representing a division of the company, the department, the type of account, etc.
As you will see, the first digit might signify if the account is an asset, liability, etc. For example, if the first digit is a "1" it is an asset. If the first digit is a "5" it is an operating expense.
A gap between account numbers allows for adding accounts in the future. The following is a partial listing of a sample chart of accounts.
Example
Simple Chart of Accounts
Group headings
- Revenue
- Cost of Goods Sold
- SG&A
- Establishment Expenses
- Interest Expenses
Within each of these headings will be the individual nominal ledger accounts that make up the chart of accounts. E.g. establishment expenses may consist of rent, rates, repairs, and so on.
Balance Sheet Accounts
Asset Accounts
- Cash - (Cash on Hand)
- Bank Accounts
- Accounts Receivable (Debtors)
- Prepaid Expenses
- Inventory (Stock on Hand)
- Land
- Buildings
- Vehicles & Equipment
- Investments & Stocks
- Accumulated Depreciation and
- Other Assets
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Liability Accounts
- Accounts Payable (Creditors)
- Credit Cards
- Tax Payable
- Employment Expenses Payable
- Bank Loans
Stockholders' Equity Accounts
- Common Stock (Share Capital),
- Retained Earnings (Revenue Reserves),
- Dividends
- Drawings
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Profit & Loss accounts
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Revenue Accounts
- Sales Revenue
- Sales Returns & Allowances
- Sales Discounts
- Interest Income
Cost of Goods Sold Accounts
- Purchases and sales Expense
- All sales Expense
- Purchase Returns & Allowances
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=====Expense Accounts===== - Advertising Expense
- Bank Fees
- Client Expense
- Depreciation Expense
- Education Expense
- Payroll Expense
- Expense
- Rental Expense
- Income Tax Expense
- Information Technology Expense
- Insurance Expense
- Office Expense
- Utilities Expense
- Maintenance - Vehicle
- Travelling and Conveyance Expense
- Legal Expense
- Salaries and Wages Expenses
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Trial Balance
The
trial balance is a list of the active general ledger accounts with debit and credit balances. A
balanced trial balance does not guarantee that there are no errors in the nominal ledger entries.
Types of accounts
- Asset accounts: represent the different types of economic resources owned or controlled by business, common examples of Asset accounts are cash, cash in bank, building, inventory, prepaid rent, goodwill, accounts receivable
[Marsden, S J, 2010. Australian Master Bookkeepers Guide. 3rd ed. Sydney Australia: CCH.] - Liability accounts: represent the different types of economic obligations by a business, such as accounts payable, bank loan, bonds payable, accrued interest.
Citation needed|date=April 2010 - Equity accounts: represent the residual equity of a business (after deducting from Assets all the liabilities) including Retained Earnings and Appropriations.
Citation needed|date=April 2010 - Revenue accounts or income: represent the company's gross earnings and common examples include Sales, Service revenue and Interest Income.
Citation needed|date=April 2010 - Expense accounts: represent the company's expenditures to enable itself to operate. Common examples are electricity and water, rentals, depreciation, doubtful accounts, interest, insurance.
Citation needed|date=April 2010 - Contra-accounts: Some balance sheet items have corresponding contra accounts, with negative balances, that offset them. Examples are accumulated depreciation against equipment, and allowance for bad debts against long-term notes receivable.
