As mentioned, besides the standard five accounts, the chart of accounts may contain additional accounts, created for the sake of more granularity or to cater to a business’s particular needs. They can vary, but the most typical here are the COGS, gains and losses, and other comprehensive income accounts. Within each category, there are specific accounts that represent different types of transactions, so there are always a number of subaccounts within each account. It’s also worth saying that depending on the idustry and a business’s structure, more accounts can form the COA. Think about the chart of accounts as the foundation of a building, in the chart of accounts you decide how your transactions are categorized and reported in your financial statements.
Though most accounting software products set you up with a standard COA or let you import your own, it’s a good idea to have an accountant scan it and add any other accounts that are specific to your business. A chart of accounts, or COA, is a complete list of all the accounts involved in your business’s day-to-day operations. Your COA is useful to refer to when recording transactions in your general ledger. Liability accounts also follow the traditional balance sheet format by starting with the current liabilities, followed by long-term liabilities.
These standards provide guidelines for financial reporting, including the structure of the COA. As mentioned, all accounts in the COA are typically arranged in a hierarchical order for easy navigation and reporting. It often follows a pattern where the first digit represents the chart of accounts examples major category, and subsequent digits provide more detail. Expenses are subtracted from revenue to calculate net income – the company’s profit or loss in the period in question. Equity is the ownership value in a company, determined by subtracting liabilities from assets.
Typically included, per the previous reporting list, are assets, liabilities, equity, revenue, and expenses. Each of these is broken down into sub-categories to further articulate more granular characteristics. It is important to keep track of both common and preferred stock in the equity accounts, as they have different implications for the company’s financial management and shareholder rights. Also, accounting software packages tend to come with a set of predefined charts of accounts for different types of businesses in variety of industry sectors.
A chart of accounts lists down all accounts used by an entity in its accounting system. For instance, if you rent, the money moves from your cash account to the rent expense account. Expense accounts allow you to keep track of money that you no longer have. This way you can compare the performance of different accounts over time, providing valuable insight into how you are managing your business’s finances. In the interest of not messing up your books, it’s best to wait until the end of the year to delete old accounts.
For bigger companies, the accounts may be divided into several sub-accounts. These numbers are typically four digits, and each account has a unique number. Current liabilities are any outstanding payments that are due within the year, while non-current or long-term liabilities are payments due more than a year from the date of the report. Many, or all, of the products featured on this page are from our advertising partners who compensate us when you take certain actions on our website or click to take an action on their website. Current liabilities are classified as any outstanding payments that are due within the year, while non-current or long-term liabilities are payments due more than a year from the date of the report.
