What is a Chart of Accounts? Types, Definition, Examples

The COA is intricately linked to an organization’s financial statements, as it provides the aggregate data necessary to create them. Each one of the accounts in your COA will show up in your financial statements, and the COA directs where they should appear, i.e., whether they should be in the balance sheet or income statement. If not set up properly, subsequent financial statements will be rife with errors and misinformation. See the list earlier in this document for the specific macro-designations. This is a practical structure for businesses that manufacture or sell products and is a good fit for those looking for added specificity in their chart of accounts structure.

It has the authority to establish and interpret GAAP for all of these entities. Expense and income/revenue accounts make up the income statement, which conveys the business’s overall profitability. The CoA is essential to good bookkeeping and financial management. A standard chart of accounts makes it easy for anybody to come into a business and quickly understand your finances. It’s a helpful index and record-keeping system for a company’s financial accounts that keeps all transactions organized. Some of the components of the owner’s equity accounts include common stock, preferred stock, and retained earnings.

Chart of Accounts Sample

A well-designed chart of accounts ultimately makes your business easier to manage and can save time and money. The chart of accounts is a graphical representation of all the general ledger accounts in a company. This chart arranges all the accounts into their respective titles, account types, and financial statement.

It is much easier to post transactions to accounts that match forms than to laboriously back them out of a jumble when a filing deadline approaches. Asset accounts represent the value of what you own, including cash, inventory, fixed assets, and other things. Every account has a balance based on additions and subtractions made since it was opened . So summaries or totals of balances of various types or groups of accounts are often included when displaying a chart of accounts. But strictly speaking, only the accounts themselves make up the chart of accounts. A chart of accounts example showing the five main account types with subcategories within each.

How is a chart of accounts organized?

NetSuite’s powerful reporting makes it easy to produce any kind of financial statement or to provide a snapshot of your financial performance. The general ledger is the greater record keeper for a company’s financial accounts, with a trial balance validated debit and credit account records. A simple way to organize the expense accounts is to create an account for each expense listed on IRS Tax Form Schedule Cand adding other accounts that are specific to the nature of the business. Each of the expense accounts can be assigned numbers starting from 5000. They represent what’s left of the business after you subtract all your company’s liabilities from its assets.

• The basic equation for determining equity is a company’s assets minus its liabilities.
• For an organization, it is important that all transactions are categorized correctly because they will be used as the basis for generating reports about the business.
• An important purpose of a COA is to segregate expenditures, revenue, assets and liabilities so viewers can quickly get a sense of a company’s financial health.
• The main account types include Revenue, Expenses, Assets, Liabilities, and Equity.

Back when we did everything on paper, you used to have to pick and organize these numbers yourself. But because most accounting software these days will generate these for you automatically, you don’t have to worry about selecting reference numbers. Rising labor costs and shifting expectations are contributing to unprecedented change in chart of accounts the labor market and altering the way companies and their executives think about talent management. Our solutions complement SAP software as part of an end-to-end offering for Finance & Accounting. BlackLine solutions address the traditional manual processes that are performed by accountants outside the ERP, often in spreadsheets.