Chart of Accounts

Chart of accounts is a list of all the accounts used by an entity in its general ledger to record double-entry transactions.

Structure

A chart of accounts includes asset accounts, liability accounts, equity accounts, income accounts, expense accounts and relevant contra-accounts. Each account is given a specific number depending on the nature of the account. For example, asset accounts may be given numbers starting from 1000 to 1999, liability accounts may be assigned numbers in the range of 2000-2999 and so on. Some numbers are left unassigned between different accounts, which makes entering new accounts easier. Further, there are group accounts to hold sub-totals and grand totals. It may also include definition of accounts included in order to provide guidance on correct classification of transactions.

Chart of accounts is the starting point of an accounting system because it tells which accounts to include in a general ledger and what mechanism to use in making and posting journal entries. The trial balance is prepared by using the list of accounts from the chart of accounts and extracting balances for each account from the general ledger. A chart of accounts is also critically important in preparation of financial statements because it helps in outlining how to group different accounts in financial statement line items.

Template/Example

There is no single chart of accounts template that fits all businesses. Its size and the nature of accounts included depend on the complexity of the business and its legal structure. For example, a company will have share capital account and dividend account, etc. in the equity section of its chart of accounts, while a partnership and a sole proprietorship will have partners’ accounts, owner’s equity account, withdrawals account, etc.

Below is a sample chart of accounts appropriate for a small business.

by Obaidullah Jan, ACA, CFA and last modified on Oct 1, 2014