What is Chart of Accounts?
The technical accounting jargon isn’t easy to understand if you do not know anything about accounting or finance.
Accounting is a crucial task that every organization, even the small-medium businesses, have to perform daily.
For instance, when you purchase a piece of office equipment, issue an invoice to your customers, or disburse salary for your employees, the business should record down all the transactions.
Before recording the transaction to the right account, businesses have to create a new account to classify the transactions based on accounting standards.
The question is, how do you know which account to record for every transaction incurred?
Hence, the Charts of Accounts will tell you where to record each of the specific transaction, as stated above.
What is Chart of Accounts?
In accounting, Chart of Accounts is a list of all the financial accounts used by the organization that comprises of the account used in both the general ledger and income statement.
As defined, the Chart of Accounts is a filing system to enables every organization to categorize each of the transactions based on the accounts affected.
In short, it provides an overview of all the financial records used during the accounting period. Thus, it gives the company an eagle view of the business’s spending and income in various business divisions.
What’s in Chart of Accounts?
The Chart of Accounts consists typically of the main accounts that include Assets, Liabilities, Revenue, Expenses, and Equity. It’s then broken down into more sub-categories.
Not every company shares the same Charts of Accounts as it varies depending on the nature of the business.
For instance, if your business involves dealing with automobiles, the company will have most of the accounts created related to automobiles such as Automobile Expense, Accumulative Depreciation — Automobile, or Automobile’s Spare Parts.
Typically, businesses will assign a specific code to each of the accounts to identify the statements tentatively. The account code is always in numerical order. However, it can also be in the alphabetical or alphanumerical format based on the organization’s preferences.
The order of the Chart of Accounts mostly starts from the balance sheet’s account and ends at the income statement’s account.
Overview of Chart of Accounts
Here is one of the Charts of Accounts sample from Deskera Books accounting software.
Based on the snapshot above, each account has its unique codes. Also, in this report, you will get the information concerning the report the accounts belong to.
The type of account classified under the balance sheet reports are the asset, liability, and equity accounts. Whereas, the income statement reports consist of expense and revenue accounts.
Start with Deskera Books’ Chart of Accounts
Deskera Books is one of the best accounting software for small-medium businesses. Deskera Books’ users can utilize the Chart of Accounts tool when tracking the accounts in their balance sheet and income statement.
There are a total of 65 accounts ready for the small-medium businesses using Deskera Books to utilize. For a niche industry, a small business can also choose to create a new account anytime.
Click here to find out more about Deskera’s product.
