The chart of accounts is a listing of all general ledger accounts in which amounts can be recorded.
In most organizations the chart of accounts is arranged in the following order: current assets, long-term assets, current liabilities, long-term liabilities, owner's (or stockholders') equity, operating revenues, cost of goods sold, operating expenses, other revenues and gains, and other expenses and losses.
Except for very small organizations, the accounts are numbered. Typically, the first digit of an asset's account number is the digit "1". The account numbers for liability accounts and owner's equity accounts often begin with the digit "2". The account numbers for operating revenue accounts might have a "3" as their first digit. Expenses could begin with the digits "4" or "5" or "6" depending on the type of expense. Gains, losses, non-operating revenues, and non-operating expenses might have "9" as their first digit.
Accounting software usually provides sample charts of accounts for various types of organizations. However, you will likely need to add more accounts or modify the account titles for your business.
The chart of accounts section of accounting software often controls how the account balances are presented in the computer generated financial statements.
Join PRO or PRO Plus and Get Lifetime Access to Our Premium Materials
Harold Averkamp (CPA, MBA) has worked as a university accounting instructor, accountant, and consultant for more than 25 years. He is the sole author of all the materials on AccountingCoach.com. Read more about the author.