A chart of accounts is a list of all accounts used by a company in its accounting system. It makes the bookkeeper's life easier.
The accounts included in the chart of accounts must be used consistently to prevent clerical and technical errors in the accounting system.
Nevertheless, take note that there is no standard chart of accounts because its contents depend upon the need of the company using it.
Accounts are grouped in their respective classifications (assets, liabilities, capital, income, and expenses) and each is given a unique account number. A coding system is used to organize the accounts according to their classification. Here's a sample chart of accounts for a small sole proprietorship business:
Chart of Accounts Example
|Gray Network Services|
|Chart of Accounts|
|ASSETS||OWNER'S EQUITY (40000-49999)|
|Current Assets (10000-19999)||40000||Mr. Gray, Capital|
|10000||Cash||40100||Mr. Gray, Drawing|
|10101||Allowance for Doubtful Accounts||INCOME (50000-59999)|
|10200||Notes Receivable||50000||Service Revenue|
|10300||Interest Receivable||50100||Interest Income|
|10400||Service Supplies||50200||Gain on Sale of Equipment|
|Non-Current Assets (20000-29999)||EXPENSE (60000-69999)|
|20000||Leasehold Improvements||60000||Rent Expense|
|20100||Furniture and Fixtures||60100||Salaries Expense|
|20101||Accumulated Depreciation –
Furniture and Fixtures
|20200||Service Equipment||60300||Utilities Expense|
|20201||Accumulated Depreciation –
|60500||Taxes and Licenses|
|LIABILITIES (30000-39999)||60600||Depreciation Expense|
|30000||Accounts Payable||60700||Doubtful Accounts Expense|
|30200||Salaries Payable||70000||Income Summary|
Additional accounts can be added, as the need arises. For bigger companies, the accounts may further be classified into different departments.
For example, employee salaries may have various accounts and be included in the chart as: 60101 Salaries Expense – Administration; 60102 Salaries Expense – Service Department; 60103 Salaries Expense – Delivery Department; etc.
Again, take note that the chart of accounts of one company may not be suitable for another company. It all depends upon their needs. In any case, it serves as a guide for bookkeepers in recording business transactions.
Now that we know what accounts to use, learn how to record business transactions in the next lessons.