Chart of Accounts

Before recording transactions into the journal, we should first know what accounts to use. This is where a chart of accounts comes in handy.

A chart of accounts is a list of all accounts used by a company in its accounting system. It makes the bookkeeper's work easier.

The accounts included in the chart of accounts must be used consistently to prevent clerical or technical errors in the accounting system.

Nevertheless, take note that there is no standard chart of accounts because its contents depend upon the needs of the company using it.

Accounts are classified into assets, liabilities, capital, income, and expenses; and each is given a unique account number. A coding system is used to organize the accounts. Here's a sample chart of accounts for a small sole proprietorship business:

Chart of Accounts Example

Gray Electronic Repair Services
Chart of Accounts
Current Assets (10000-19999)
10000 Cash
10100 Accounts Receivable
10101 Allowance for Doubtful Accounts
10200 Notes Receivable
10300 Interest Receivable
10400 Service Supplies
Non-Current Assets (20000-29999)
20000 Leasehold Improvements
20100 Furniture and Fixtures
20101 Accumulated Depreciation – Furniture and Fixtures
20200 Service Equipment
20201 Accumulated Depreciation – Service Equipment
LIABILITIES (30000-39999)
30000 Accounts Payable
30100 Notes Payable
30200 Salaries Payable
30300 Rent Payable
30400 Interest Payable
30500 Unearned Revenue
30600 Loans Payable
OWNER'S EQUITY (40000-49999)
40000 Mr. Gray, Capital
40100 Mr. Gray, Drawing
INCOME (50000-59999)
50000 Service Revenue
50100 Interest Income
50200 Gain on Sale of Equipment
EXPENSE (60000-69999)
60000 Rent Expense
60100 Salaries Expense
60200 Supplies Expense
60300 Utilities Expense
60400 Interest Expense
60500 Taxes and Licenses
60600 Depreciation Expense
60700 Doubtful Accounts Expense
70000 Income Summary

Additional accounts can be added as the need arises. For bigger companies, the accounts may be divided into several sub-accounts.

For example, employee salaries may have various accounts for different departments and be included in the chart of accounts as:
  60101 Salaries Expense – Administrative,
  60102 Salaries Expense – Servicing,
  60103 Salaries Expense – Marketing, etc.

Again, take note that the chart of accounts of one company may not be suitable for another company. It all depends upon the company's needs. In any case, the chart of accounts is a useful tool for bookkeepers in recording business transactions.

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