Definition of Chart of Accounts
The chart of accounts is a listing of the names and account numbers for the general ledger accounts available for recording amounts. However, the chart of accounts will not include any transaction amounts or account balances.
The chart of accounts is helpful for identifying the accounts to be used when encountering less frequent transactions. The chart of accounts and the general ledger accounts can also be modified to provide more detailed information, reflect changes in the business operations, etc.
Examples of Chart of Accounts
A large corporation's chart of accounts could consist of thousands of accounts each with an account number (perhaps with more than 10 digits) and an account title. The chart of accounts for a very small company might consist of less than one hundred accounts with an account number having 3 digits.
The first digit of a six-digit account number will likely indicate the type of account. For instance, an asset account number will begin with the digit "1". Liability accounts will begin with the digit "2". Operating revenue accounts will begin with the digit "3", etc. Operating expenses will use accounts beginning with digits such as "4" through "7". Nonoperating revenues, nonoperating expenses, gains, losses, and other items might begin with "9".
At a large company, the second digit of the account numbers might indicate the division within the company, while the third digit will indicate a department within the division. The remaining digits of the account numbers will indicate the type of revenue, type of expense, etc.
Popular accounting software will include some examples of charts of accounts. Our Explanation of Chart of Accounts includes two hypothetical examples.