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 is a reference that 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.
Take note, however, that the 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.
Provided below is a sample chart of accounts for a small sole proprietorship business:
| 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 could be included in the chart of accounts as:
5011 Salaries Expense – Administrative,
5012 Salaries Expense – Servicing,
5013 Salaries Expense – Marketing, etc.
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, nature of operations, size, etc. In any case, the chart of accounts is a useful tool for bookkeepers in recording business transactions.
A chart of accounts lists down all accounts used by an entity in its accounting system.
The accounts are identified with unique account numbers, and are usually grouped according to their financial statement classification.
The chart of accounts is useful in maintaining consistency and data integrity in recording transactions.
