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What Is a Chart of Accounts?
Chart of Accounts (COA) is the summary of all the accounts that are kept in a company’s general ledger. In short, it is an element of organization in the format of a tabular form. Wherein all the financial document transactions that a company would engage in for a particular accounting period, are group and categorize according to lines.
Understanding how a Chart of Accounts looks
Both big and small businesses employ a COA for proper arrangement of their finances and to provide proper vision and information about them to the people who are interested in investing in the business such as investors and shareholders. This is achieved by the use of the following options; separation of expenditures/revenue, assets due and payable, these aid in ensuring that the prepared statements meet the reporting standards.
Here is an approach with which one can look at a ‘COA’ scheme in relation to one’s own balance. Suppose you have a checking account, a savings account, as well as a diploma of deposit, or CD, at the same financial institution. When you log and get into your account information online, usually you first get into an account summary page that shows the balances with different accounts. Likewise, if you utilize an online tool that consolidates all your account information in one application, for instance, Mint or Personal Capital, it is much of the same as a company’s COA. Allows you to view your entire balance sheet simultaneously and all your company’s resources and debts at once.
The chart of accounts also has no fixed format and may vary with the accounting industry, company’s size and its needs. In general, all the aforemention types of knowledge follow a format that is outline below. However, the layouts and appearances of the final structures will be shaped and determined by the type and size of the respective business.
COA Structure
The common layout of the COA is that it is design to display information according to the format of financial statements. This results to the fact that balance sheet accounts appear first on the list in the preparation of the statement while accounts in the income statement are next.
The primary accounts of the assets, liabilities, shareholders ’ equity, revenues. And expenses can be subclassified to other accounts like; operating revenues, operating expenses, non-operating sources of revenue, and non-operating losses.
However, these accounts of operating revenues and operating expenses might further be subclassified for business functions and/or by divisions of the operating company.
As an example, a small company COA might include these sub-accounts under the primary assets, primary liabilities, and primary shareholders’ equity accounts:
Assets
- Cash
- Savings account
- Petty cash balance
- Accounts receivable
- Undeposited funds
- Inventory assets
- Prepaid insurance
- Vehicles
- Buildings
Liabilities
- Company credit card
- Accrued liabilities
- Accounts payable
- Payroll liabilities
- Notes payable
Shareholders’ equity
- Common stock
- Preferred stock
- Retained earnings
Account Identifiers
In order to enable the readers to easily locate a specific account or to know what they are dealing with at any time. Each COA usually involves identification codes, account names, and short descriptions.
This coding system is essential because the COA can show numerous line items for all the transactions in every primary account.
For instance, a company may choose to code its assets from 100 to 199, liabilities on the same stretch from 200 to 299, and equity on the same stretch from 300 to 399 and so on. They could in turn be sub-classified as for instance current assets (110-119) or current liabilities (210-219). The use of figures involves depends on the size of a company as well as the transactions of the company in question.
Most organizations in their management systems of COAs ensure that the expense information is in a separate department format. Thus, it can be seen that the expense accounts of the organization are uniform in all the departments including the sales department. The engineering department, and the accounting department. Some of the examples of expenses include the cost of sales or the cost of goods sold (COGS). Depreciation expense, utility expenses, wages expenses among others.
Special Considerations
It will, therefore, be seen that COAs can differ and should be design in a way to reflect operations of a company. But they also have to adhere by some of the standards of. The Financial Accounting Standards Board and Generally Accepted Accounting Principles.
However, of significant consideration is that such accounting estimates, referred to as COAs. Should remain unchanged from one year to the other. This can be accomplish to guarantee that relevant appraisal of the company’s fiscal statements can be made over some period.
Chart of accounts can be define as a list of all the accounts use in the business. And this guideline will discuss the essence of a chart of accounts.
It is an important asset which helps to sort a number of important operations in the sphere of finance in a comprehensible manner. They are organize in the form of lines and hence any transaction can easily be identifie and evaluate. This is important in presenting investors and the other stakeholders with an overall picture of a specific company’s financial information.
Is there an opinion on a single standardize format regarding the COA?
Not precisely. Still, a company could use, develop, or transform any of the formats it wishes to. As research and observation reveals. The technique most frequently used is based on storing information. By accounts and providing every account with a code and description. The format used should remain constant so as to facilitate comparison of. The period that is being report as well as the year on year comparison.
Is It Need to Prepare Chart of Accounts?
Not by any means. But it is deem as essential by all sorts of organizations that want to sort and classify all of their operations in order to have handy references.
The Bottom Line
Chart of accounts is a document that consists of. A list of numbers that is allocate to each of the transactions that. A business conducts in the course of an accounting period. The information is key in most cases present group according to balance sheet and income statement.
The chart of accounts is a very helpful apparatus for the openness it gives to. The centre financial particulars for people inside companies and outside them, for instance, investors and shareholders.
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