Chart of Accounts: Structure, Benefits, and Examples

Strategic business plan with accounting records is important for business growth. To keep accounts in order, a chart of accounts that need to be followed. Accounts should be well-organized and grouped correctly, which means having a clear chart of accounts is necessary for every business.

What Is a Chart of Accounts?

A Chart of Accounts is a list of all the accounts a business uses to keep track of its money. It helps organize financial information, making it easier to manage and follow. Each account has a special number and name, which represents different parts of the business, like:

• Assets (things the business owns)
• Liabilities (things the business owes)
• Equity (owner’s share)
• Income (money the business earns)
• Expenses (costs the business pays)

This list helps the business stay organized and understand its financial situation better.

How a Chart of Accounts Works?

A Chart of Accounts (COA) is a system that organizes a company’s overall financial transactions. It groups accounts into categories and subcategories, uses a clear structure, and gives each account an individual number. The COA helps to certain criterias:

• Keep the accounting equation balanced.
• Record transactions accurately.
• Prepare financial statements easily.

It can be customized to fit a company’s needs, makes financial analysis simpler, and provides a standard way to share financial information.

There is no fixed format for COA. It all depends on the size and also needs of the business. To acquire this skill, consider joining the best accounting courses that offer practical, real-world knowledge to help you manage business finances efficiently.

Chart of Accounts Structure

It’s important to create the Chart of Accounts (COA) carefully from the start because it helps the company manage its finances well. Since the COA is usually created only once, any mistakes can impact the company’s financial health.

The chart of accounts structure is developed to match with the financial statements. The statements like assets, liabilities, equality etc keeps financial data clear and easy to use. 

Subaccounts are useful because they provide more details about each main account, helping to analyze a company’s financial transactions more effectively. The subaccounts used will depend on the type of business and its reporting needs.

Assets

• Current Assets
  • Cash on Hand
  • Accounts Receivable
• Fixed Assets
  • Buildings
  • Land
  • Vehicles
  • Machinery and Equipment

Liabilities

• Current Liabilities
  • Accounts Payable
  • Short-Term Loans
• Long-Term Liabilities
  • Bank Loans
  • Mortgage Payable

Equity

• Common Stock
• Capital
• Retained Earnings

Revenue

• Product Sales
• Service Sales
• Subscription Revenue

Expenses

• Operating Expenses
• Salaries and Wages
• Depreciation Expenses
• Utilities
• Rent

Advantages of Chart of Accounts

Here are some of the benefits of chart of accounts are given below;

• A well-organized Chart of Accounts (COA) helps a business run smoothly and keep finances in good shape.
• It reduces mistakes when recording transactions and ensures income and expenses are sorted correctly.
• It allows for easy creation of useful financial reports to better understand the business’s performance.
• It helps track income and expenses, making future financial planning easier.
• A good COA makes tax filing faster and more accurate, saving time and reducing errors.
• It helps make smart decisions about spending and saving, improving the business’s financial health.

Example

Here, one of the small company of chart of accounts examples are given below;

Like mentioned in the above table column, you can create different criteria for a chart of accounts. If you’re looking to build on this knowledge, short-term accounting courses after 12th grade can help you gain a deeper understanding of creating and managing a Chart of Accounts (COA) designed to different business needs.