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What is Chart of Accounts?

Chart of Accounts

Also known as COA, chart of accounts is a list of all accounts in a company’s general ledger. They are the identified accounts which are available for a company to record transactions.

ERPs such as Oracle, SAP, etc., can allow each account a unique number as defined. With this, it can be identified and modified according to the business’ needs.

 

Think of chart of accounts as a Tree!

  • “Assets” will be branches of the tree.
  • “Current assets, fixed assets, other assets” are its sub-branches.
  • Finally, accounts such as Cash, Bank, Debtor, Prepaid Insurance are like leaves of the sub-branches. 

Keeping the same fundamentals, chart of accounts tree can be differently designed for separate businesses depending on need, size and divisions inside a company.

 

Below is a sample listing of the order where accounts appear inside chart of accounts.

 Type of AccountsSub Classification Examples
Balance Sheet AccountsAssetsE.g. Current Assets, Fixed Assets, Other Assets
 LiabilitiesE.g. Current Liabilities, Long-Term Liabilities
 CapitalE.g. Equity
    
Profit & Loss AccountsOperating Revenues & GainsE.g. Sales
 Non-Operating Revenues & GainsE.g. Profit on sale of assets
    
 Operating ExpensesE.g. Cost of goods sold
 Non-Operating Expenses & LossesE.g. Loss on sale of assets

 

Few reasons for using the chart of accounts

  • Chart of accounts helps in differentiating and properly recording different types of transactions such as Assets, Liabilities, Capital, Revenue, Expenditure, etc.
  • Chart of accounts also helps in efficiently organizing and managing the financial data.

Related Topic – What is a Subledger?

Sample Chart of Accounts Format

Current Assets – Account No. 2001 to 2999

Cash2001
Receivables2002
Prepaid Expenses2003
Stock2004
Example Current Asset2xxx

 

Fixed Assets – Account No. 3001 to 3999

Building3001
Land3002
Furniture3003
Stock3004
Example Fixed Asset3xxx

 

Current Liabilities – Account No. 4001 to 4999

Overdraft4001
Payables4002
Wages Payable4003
Accrued Expenses4004
Example Current Liability4xxx

 

Just like the above accounts, chart of accounts will have different groups such as capital, revenue and expenditure with their subtypes, accounts and individual account numbers to record transactions.