Of the many things we enjoy collaborating with our clients on, one of our big services is bookkeeping and accounting. Our team works together to offer reports, analysis, and detailed understanding of the financial components of your business. To help keep things clear, let’s dive into your Chart of Accounts.
What is the Chart of Accounts?
A chart of accounts is a document that has details and information on all of your business’ accounts, and is used to create other accounting records and statements like your balance sheet and cash flow report.
What is listed on the Chart of Accounts?
The Chart of Accounts includes ALL of your business’ accounts, typically grouped into five categories:
- Assets
- Liabilities
- Equity
- Income
- Expenses
Within each of these categories you will find information on accounts receivable, inventory, stock, income (sales, interest, rental, etc.), payroll, office rent, and expenses.
What are the Chart of Accounts categories and how are they assigned?
Typically assigned with accounts and corresponding numbers, your Chart of Accounts will include:
- Category (asset, liability, equity, income, or expense)
- Type of Account
- Account Name
- Account Number
- Description
Depending on the size and structure of your business, you will assign corresponding codes to represent each of the five categories (typically three- or four-digit codes). Additionally, some businesses will use additional or multi-digit codes for different divisions or categories of the business.
Common numbering structure is:
| Assets | 1000-1999 |
| Liabilities | 2000-2999 |
| Equity | 3000-3999 |
| Income | 4000-4999 |
| Expenses | 5000-5999 |
Note: Some businesses use a three digit system, and others have additional numbering to denote company division or departments (i.e. XX-XXXX). We absolutely recommend consulting with a CPA to ensure proper setup of your Chart of Accounts.
How is the Chart of Accounts different from the General Ledger?
Put simply, the Chart of Accounts is a record of all financial accounts, while the General Ledger is a record of all financial transactions within those accounts.
Who is the Chart of Accounts for?
The Chart of Accounts is used by management, investors (current and potential), shareholders, accountants, bookkeepers, and auditors to name a few.
Who is responsible for the Chart of Accounts?
For most businesses, the bookkeeper or accountant, whether in-house or outsourced, is in charge of the Chart of Accounts.
Note: This is general information. We highly recommend consulting with a CPA about your specific situation before setting up a chart of accounts.
