Chart of Accounts
BeginnerA chart of accounts is a complete, organised list of all the accounts a business uses to record its transactions, usually grouped by type and given reference numbers.
Every transaction must be recorded in a specific account, such as cash, sales, rent expense or bank loan. The chart of accounts is the master list of those accounts, a bit like the table of contents for a company's books.
Accounts are usually grouped in the order they appear in the financial statements: assets, liabilities, equity, revenue and expenses. Each account gets a number, often with the first digit showing its group. For example, accounts beginning with 1 might be assets, so 1000 could be cash and 1200 accounts receivable, while accounts beginning with 5 might be expenses, such as 5100 for rent.
A well-designed chart of accounts makes it easy to record transactions consistently and to produce useful reports. It should be detailed enough to show what managers need, such as separate accounts for each type of expense, but not so detailed that recording becomes confusing.
Businesses in the same industry often use similar charts of accounts, and some countries require a standard national structure.
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