The accounts that are used to sort and store transactions are found in the company's general ledger. The general ledger is often arranged according to the following seven classifications. (A few examples of the related account titles are shown in parentheses.) Show
Balance Sheet AccountsThe first three classifications are referred to as balance sheet accounts since the balances in these accounts are reported on the financial statement known as the balance sheet.
The balance sheet accounts are also known as permanent accounts (or real accounts) since the balances in these accounts will not be closed at the end of an accounting year. Instead, these account balances are carried forward to the next accounting year. Income Statement AccountsThe four remaining classifications of accounts are referred to as income statement accounts since the amounts in these accounts will be reported on the financial statement known as the income statement.
The income statement accounts are also known as temporary accounts since the balances in these accounts will be closed at the end of the accounting year. Each income statement account is closed in order to begin the next accounting year with a zero balance. The year-end balances from all of the income statement accounts will be combined and entered as a single net amount in Retained Earnings (a balance sheet account within stockholders' equity) or in a proprietor's capital account.
Chart of AccountsThe chart of accounts is simply a list of all of the accounts that are available for recording transactions. This means that the number of accounts in the chart of accounts will be greater than the number of accounts in the general ledger. (The reason is that accounts with zero balances and no recent entries are often omitted from the general ledger until there is a transaction for the account.) The chart of accounts is organized similar to the general ledger: balance sheet accounts followed by the income statement accounts. However, the chart of accounts does not contain any entries or account balances. The chart of accounts allows you to find the name of an account, its account number, and perhaps a brief description. It is important to expand and/or alter the chart of accounts to accommodate the changes to an organization and when there is a need for improved reporting of information. In some accounting software, the chart of accounts is also used to designate where an account will be reported in the financial statements. A list of all the financial accounts included in the financial statements of a company What is the Chart of Accounts?The chart of accounts is a tool that lists all the financial accounts included in the financial statements of a company. It provides a way to categorize all of the financial transactions that a company conducted during a specific accounting period. Companies often use the chart of accounts to organize their records by providing a complete list of all the accounts in the general ledger of the business. The chart makes it easy to prepare information for evaluating the financial performance of the company at any given time.  The chart of accounts provides the name of each account listed, a brief description, and identification codes that are specific to each account. The balance sheet accounts are listed first, followed by the accounts in the income statement. The balance sheet accounts comprise assets, liabilities, and shareholders equity, and the accounts are broken down further into various subcategories. The accounts in the income statement comprise revenues and expenses, and these accounts are also broken down further into sub-categories. Setting Up the Chart of AccountsWhen setting up a chart of accounts, typically, the accounts that are listed will depend on the nature of the business. For example, a taxi business will include certain accounts that are specific to the taxi business, in addition to the general accounts that are common to all businesses. For example, the taxi business will include a fuel expense account that is not common to all businesses, but it will leave out an inventory account since the taxi business is a service business that does not hold stock. Typically, when listing accounts in the chart of accounts, you should use a numbering system for easy identification. Numbering also makes it easy to record a transaction. Small businesses commonly use three-digit numbers, while large businesses use four-digit numbers to allow room for additional numbers as the business grows. Groups of numbers are assigned to each of the five main categories, while blank numbers are left at the end to allow for additional accounts to be added in the future. Also, the numbering should be consistent to make it easier for management to roll up information of the company from one period to the next. Example: A large business numbering system
Categories on the Chart of AccountsEach of the accounts in the chart of accounts corresponds to the two main financial statements, i.e., the balance sheet and income statement. Balance sheet accountsSuch accounts are required when creating a balance sheet for the business. Balance sheet accounts comprise the following: 1. Asset accounts The asset account provides a list of all the categories of assets that the business owns. The account may include intangible assets (such as trademarks, patents, and software), current assets (such as cash on hand, accounts receivable, and Each asset account can be numbered in a sequence such as 1000, 1020, 1040, 1060, etc. The numbering follows the traditional format of the balance sheet by starting with the current assets, followed by the fixed assets. 2. Liability accounts Liability accounts provide a list of categories for all the debts that the business owes its creditors. Typically, liability accounts will include the word “payable” in their name and may include accounts payable, invoices payable, salaries payable, interest payable, etc. Liability accounts also follow the traditional balance sheet format by starting with the current liabilities, followed by long-term liabilities. The number system for each liability account can start from 2000 and use a sequence that is easy to follow and compare in different accounting periods. 3. Owner’s equity accounts Equity represents the value that is left in the business after deducting all the liabilities from the assets. Owner’s equity measures how valuable the company is to the shareholders of the company. Some of the components of the owner’s equity accounts include common stock, preferred stock, and retained earnings. The numbering system of the owner’s equity account for a large company can continue from the liability accounts and start from 3000 to 3999. Income statement accountsThe main components of the income statement accounts include the revenue accounts and expense accounts. 1. Revenue accounts Revenue accounts capture and record the incomes that the business earns from selling its products and services. It only includes revenues related to the core functions of the business and excludes revenues that are unrelated to the main activities of the business. Some of the sub-categories that may be included under the revenue account include sales discounts account, sales returns account, interest income account, etc. Numbering for each revenue account can start from 4000. 2. Expense accounts The expense account is the last category in the chart of accounts. It includes a list of all the accounts used to capture the money spent in generating revenues for the business. The expenses can be tied back to specific products or revenue-generating activities of the business. A simple way to organize the expense accounts is to create an account for each expense listed on IRS Tax Form Schedule C and adding other accounts that are specific to the nature of the business. Each of the expense accounts can be assigned numbers starting from 5000. SummarySetting up a chart of accounts can provide a helpful tool that enables a company’s management to easily record transactions, prepare financial statements, and review revenues and expenses in detail. Additional ResourcesThank you for reading CFI’s guide to Chart of Accounts. To keep learning and advancing your career, the following CFI resources will be helpful:
What is a list of all accounts a company uses not including account balances?A company's Chart of Accounts is a list of all Asset, Liability, Equity, Revenue, and Expense accounts included in the company's General Ledger.
Is a record containing all accounts used by a company including account balances?General Ledger (or ledger)—is a record containing all accounts used by a company.
What is a list of all of a company's accounts?What is the chart of accounts? A chart of accounts is a list of all your company's “accounts,” together in one place. It provides you with a birds eye view of every area of your business that spends or makes money. The main account types include Revenue, Expenses, Assets, Liabilities, and Equity.
What is a list of all ledger accounts and identification numbers not including account balances?A chart of accounts (COA) is an index of all the financial accounts in the general ledger of a company.
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A of accounts is a list of all accounts a company uses, not including account balances
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