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 chart of accounts vary from company to company. The contents depend upon the needs and preferences 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
 
ASSETS (1000-1999)
1000 Cash
1010 Accounts Receivable
1011 Allowance for Doubtful Accounts
1020 Notes Receivable
1030 Interest Receivable
1040 Service Supplies
1510 Leasehold Improvements
1520 Furniture and Fixtures
1521 Accumulated Depreciation – Furniture and Fixtures
1530 Service Equipment
1531 Accumulated Depreciation – Service Equipment
   
LIABILITIES (2000-2999)
2000 Accounts Payable
2010 Notes Payable
2020 Salaries Payable
2030 Rent Payable
2040 Interest Payable
2050 Unearned Revenue
2060 Loans Payable
   
OWNER'S EQUITY (3000-3999)
3000 Mr. Gray, Capital
3010 Mr. Gray, Drawing
   
REVENUES (4000-4999)
4000 Service Revenue
4010 Interest Income
4020 Gain on Sale of Equipment
4999 Income Summary
   
EXPENSES (5000-5999)
5000 Rent Expense
5010 Salaries Expense
5020 Supplies Expense
5030 Utilities Expense
5040 Interest Expense
5050 Taxes and Licenses
5060 Depreciation Expense
5070 Doubtful Accounts Expense
   

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:
  5011 Salaries Expense – Administrative,
  5012 Salaries Expense – Servicing,
  5013 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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