Chart of Accounts
A chart of accounts is a list of the general ledger accounts (and subaccounts) available for recording an organization’s transactions. The chart of accounts will likely include an account number and account title. However, there could also be a brief description of the transactions that should be recorded in each of the accounts. The chart of accounts can be expanded to accommodate new types of business transactions.
The chart of accounts will not include the account balances or other amounts.
How the Chart of Accounts Is Organized
The chart of accounts will have the accounts arranged in the same order as the general ledger. A common order for a business corporation is:
Account Numbers
It is common for the first digit of each account number to indicate the type of account. For example, the first digit of an asset account number will usually begin with a “1”. The first digit of the liability accounts will begin with the digit “2”. Perhaps marketing expenses will begin with the digit “5” and administrative expenses will begin with the digit “6”. Non-operating or other income items may begin with the digit “9”.
Very small companies might use 4-digit account numbers, while large companies may use 6 or more digits in their account numbers.
Other Comments
The chart of accounts often reflects a company’s organization chart. With that arrangement, the internal financial statements can be prepared for each division, department, cost center, etc. The allows a company to give the person who is responsible for a specific department only the financial information for which they are responsible.
Today’s accounting software may provide sample charts of accounts for a variety of businesses. However, you should plan on having to modify and expand the chart of accounts in order to accommodate your particular organization.
In the accounting software that I had used many years ago, the chart of accounts included a field for coding the layout of the financial statements. For example, part of the code would cause the balances in several accounts to be “condensed” into a single amount. The financial statement would then display only the condensed total amount. It also prepared a separate page or schedule to show the detailed amounts.
