The chart of accounts is a list created with the names of the accounts that a company has identified with an account number, and that it has made available to record transactions in its general ledger. A company has total flexibility to adapt the chart of accounts.
The intent of this adaptation is to make the plan better fit your needs, including adding or removing accounts as needed. Regardless of the size of the business, industry or type of organization, all entities use a chart of accounts.
In some countries the charts of accounts are defined by the accountant based on a standard general design, such as the BAS in Sweden, or as regulated by law. However, in most countries it is up to each accountant to design the specific chart of accounts for the company.
The list can use numeric, alphabetic, or alphanumeric identifiers. However, in many computerized environments — such as the SIE format — only numeric identifiers are allowed.
What is it for?
The chart of accounts serves as the basis for a company's financial record keeping system. Provides a logical structure that makes it easy to add new accounts and delete old accounts.
An important goal of the chart of accounts is to organize the company's own finances quite simply so that reporting makes more sense, segregating income, expenses, liabilities, and assets, in order to give stakeholders a lot of understanding. better on the situation of a company in the financial field.
An organized system is created for reading finances. Without the chart of accounts you would still have the same information, but it would be very difficult to decipher.
A well-designed chart of accounts not only meets the information needs of management, but also helps a company meet financial reporting standards.
When keeping track of your bookkeeping, whether you're using the old-fashioned pen and paper or using accounting software , you need to know where the money is coming from and where it is going.
The chart of accounts is simply the organizational system used to maintain this information globally.
For companies of any kind
Some large companies will use a detailed version of the chart of accounts, while most small companies may use a much shorter version, but they are all similar.
Therefore, this is not specific to any type of industry or organization, but it is the same for all companies.
The structure and names of the accounts should help to have a consistent posting of transactions. Each nominal ledger account is unique, which allows it to be located in the general ledger.
Within the chart of accounts, the list is arranged in the order in which accounts usually appear in financial statements: balance sheet accounts first, followed by profit and loss statement accounts.
Balance sheet accounts
- Equity of the owners (shareholders).
Profit and Loss Statement Accounts
- Organizational chart.
- Operating expenses.
- Non-operating income and profits.
- Non-operating expenses and losses.
Within the categories of operating income and expenses, the accounts could additionally be organized by business function (production, sales, administration, finance) and / or by divisions, product lines, etc.
A chart of accounts is likely to be as large and complex as the business itself. An international corporation with multiple divisions may need thousands of accounts, while a small local retailer may need as few as a hundred accounts.
Expenses by department
The organization chart of a company can serve as an outline for the chart of accounts.
For example, if a company divides its business into ten departments (production, marketing, human resources, etc.), each department is likely to account for its own expenses (salaries, supplies, telephone, etc.). Each department will have its own account for telephone expenses, salary expenses, etc.
In the chart of accounts, each account is generally assigned a name and a unique number by which it can be identified. Account numbers are typically five or more digits in length, with each digit representing a company division, department, account type, and so on.
As you will see, the first digit could mean if the account is an asset, liability, etc. For example, if the first digit is "1", it is an asset. If the first digit is "5", it is an operating expense.
An empty space between account numbers allows you to add accounts in the future. The following is a partial list of a sample chart of accounts.
Current assets (account numbers 10000-16999)
10100 Cash-Current account.
10200 Cash-Payroll Account.
10600 Petty Cash Fund.
12100 Accounts receivable.
12500 Allocation of doubtful accounts.
15300 prepaid insurance.
Fixed assets (account numbers 17000-18999)
18100 Accumulated depreciation-Buildings.
18300 Accumulated depreciation-Equipment.
18800 Accumulated depreciation-Vehicles.
Current liabilities (account numbers 20040-24999)
20140 Notes payable-Credit line 1.
20240 Notes payable-Credit line 2.
21,000 Accounts payable.
22100 Wages payable.
23100 Interest payable.
24,500 unearned income.
Long-term liabilities (account numbers 25000-26999)
25100 Mortgage loan payable.
25600 Bonds payable.
25650 Discount on bonds payable.
Stockholders' equity (account numbers 27000-29999)
27100 Common shares.
27,500 Retained earnings.
29,500 Treasury shares.
Operating income (account numbers 30000-39999)
31010 Sales-Division 1, Product Line 010.
31022 Sales-Division 1, Product Line 022.
32019 Sales-Division 2, Product Line 015.
33110 Sales-Division 3, Product Line 110.
Cost of Goods Sold (CMV) (account numbers 40000-49999)
41010 CMV-Division 1, Product Line 010.
41022 CMV-Division 1, Product Line 022.
42019 CMV-Division 2, Product Line 015.
43110 CMV-Division 3, product line 110.
Marketing expenses (account numbers 50000-50999)
50100 Marketing department. Wages
50150 Marketing department. Payroll taxes.
50200 Marketing department. Supplies
50600 Marketing department. Telephone.
Payroll department expenses (account numbers 59000-59999)
59100 Payroll Department. Wages
59150 Payroll Department. Payroll taxes.
59200 Payroll Department. Supplies
59600 Payroll Department. Telephone.
Others (account numbers 90000-99999)
91800 Gain from sale of assets.
96100 Loss on sale of assets.