Chart of Accounts: Definition, Setup & Examples

This sample chart of accounts provides an example using some of the most commonly found account names. A simple way to organize the expense accounts is to create an account for each expense listed on IRS Tax Form Schedule C and adding other accounts that are specific to the nature of the business. When setting up a chart of accounts, typically, the accounts that are listed will depend on the nature of the business. For example, a taxi business will include certain accounts that are specific to the taxi business, in addition to the general accounts that are common to all businesses. The structure of a COA not only facilitates accurate financial recording and reporting but also ensures that all financial transactions are accounted for systematically.

1. As time goes by, you may find yourself wanting to create a new line item for each transaction.
2. A business transaction will fall into one of these categories, providing an easily understood breakdown of all financial transactions conducted during a specific accounting period.
3. It aids in identifying spending trends, profitable areas, and potential savings that are crucial for strategic planning and budgeting.

Each category, or “account” in this list, is assigned a unique code to keep things straightforward and consistent. This makes it easier to find information and ensures that everyone in the business records transactions similarly. FreshBooks will help you stay organized with a user-friendly interface that keeps things simple. The chart of accounts is a tool that lists all the financial accounts included in the financial statements of a company. It provides a way to categorize all of the financial transactions that a company conducted during a specific accounting period.

Create business account names

Knowing how to keep your company’s chart organized can make it easier for you to access financial information. Each of the accounts in the chart of accounts corresponds to the two main financial statements, i.e., the balance sheet and income statement. Chart of accounts (COA) is a financial tool that acts like an index for a business’s financial transactions. By creating a COA, you’re setting up a unique list of all the account categories you’ll use to keep track of your business’s finances. This numbering system helps bookkeepers and accountants keep track of accounts along with what category they belong two.

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Liability accounts also follow the traditional balance sheet format by starting with the current liabilities, followed by long-term liabilities. The number system for each liability account can start from 2000 and use a sequence that is easy to follow and compare in different accounting periods. Each asset account can be numbered in a sequence such as 1000, 1020, 1040, 1060, etc. The numbering follows the traditional format of the balance sheet by starting with the current assets, followed by the fixed assets. Typically, when listing accounts in the chart of accounts, you should use a numbering system for easy identification.

Chart of Accounts Structure

Similar to a chart of accounts, an accounting template can give you a clear picture of your business’s financial information at a glance. Utilizing accounting tools like these will ensure a better workflow, helping you grow your company. FreshBooks offers a wide variety of accounting tools, like accounting software, that make it easier to stay organized. In this sample chart of accounts template the sub-group column divides each group into the categories shown in the listings below. The purpose of the sub-group is to categorize each account into classifications that you might need to present the balance sheet and income statement in accounting reports.

The general ledger provides a comprehensive view of your financial activities. However, a profit and loss (P&L) statement overviews revenues and expenses. Liability accounts provide a list of categories for all the debts that the business owes its creditors. Typically, liability accounts will include the word “payable” in their name and may include accounts payable, invoices payable, salaries payable, interest payable, etc. Business needs and regulations change over time, so it’s important to review your COA periodically to ensure it continues to meet your business requirements. This might involve adding new accounts, removing redundant ones, or restructuring sections to improve clarity and functionality.

A COA typically includes a detailed list of accounts organized by categories like assets, liabilities, and expenses, each with a unique code. This structure aids in systematic transaction recording, financial tracking, and ensures consistent reporting across the business. To create a COA for your own business, you will want to begin with the assets, labeling mobile bookkeeping and secretarial services them with their own unique number, starting with a 1 and putting all entries in list form. The balance sheet accounts (asset, liability, and equity) come first, followed by the income statement accounts (revenue and expense accounts). While the chart of accounts can be similar across businesses in similar industries, you should create a chart of accounts that is unique to your individual business. You should ask yourself, what do I want to track in my business and how do I want to organize this information?

As time goes by, you may find yourself wanting to create a new line item for each transaction. However, doing so could litter your company’s chart and make it confusing to navigate. For instance, if you rent, the money moves from your cash account to the rent expense account. Expense accounts allow you to keep track of money that you no longer have. Each time you add or remove an account from your business, it’s important to record it in your books.

This column is for information only to indicate whether the account is normally increased by a debit or a credit. For example expense accounts are normally increased by a debit entry, whereas income accounts are normally increased by a credit entry. QuickBooks Online automatically sets up a chart of accounts for you based on your business entity with the option to customise it as needed.

Under each main category, create subcategories to further detail the transactions. Ensure that cost flow assumption the numbering leaves room for additional accounts to be added as the business grows. A beginner’s guide to the expense report, a form businesses use to track and reimburse employee expenses. To do this, she would first add the new account—“Plaster”—to the chart of accounts.

COA stands for chart of accounts, which is a systematic arrangement of all the account titles and numbers a business uses for its accounting system. This structure enables businesses to organize their financial transaction records clearly and systematically. The Chart of Accounts (COA) is essentially a listing of all account titles that a business may use to record transactions in an organized way. In contrast, the general ledger is where all financial transactions of a company are recorded and summarized using the accounts from the COA. An added bonus of having a properly organized chart of accounts is that it simplifies tax season.

The role of equity differs in the COA based on whether your business is set up as a sole proprietorship, LLC, or corporation. This would include Owner’s Equity or Shareholder’s Equity, depending on your business’s structure. The basic equation for determining equity is a company’s assets minus its liabilities. In the sample chart of accounts for example, the expense accounts are sub-divided into business functions such as research and development, sales and marketing, and general and administrative expenses. This column shows the financial statement in which the account appears, and for a profit making business is either the balance sheet of the income statement. In this sample chart of accounts, the code is a number, but could be any appropriate system which allows accounts to be grouped together.