What Are Chart of Accounts? How It Works, Setting up & Pros

A standard COA will be a numbered list of the accounts that fill out a company’s general ledger, acting as a filing system that categorizes a company’s accounts. It also helps with recording transactions and organizing them by the accounts they affect to help keep the finances organized. Business owners who keep a chart of accounts handy will have an advantage when it comes to accounting.

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What’s important is to use the same format over time for the consistency of period-to-period and year-to-year comparisons. Of crucial importance is that COAs are kept the same from year to year. Doing so ensures that accurate comparisons of the company’s finances can be made over time. Therefore, it is advisable to initially create a list of accounts that is unlikely to significantly change for as long as possible and keep it congruent among all areas of business. If you start off with only a handful of accounts and then keep expanding the list as your business grows, it may become increasingly challenging to compare financial results against the previous years. Find out more about how QuickBooks Online can help you save time and stay on top of your finances while you grow your business.

Revenue

Here’s how to categorize transactions in QuickBooks Online and navigate the COA. Many, or all, of the products featured on this page are from our advertising partners who compensate us when you take certain actions on our website or click to take an action on their website. Current liabilities are any outstanding payments that are due within the year, while non-current or long-term liabilities are payments due more than a year from the date of the report.

How accounting software can help manage your chart of accounts

Similarly, if you use an online program that helps you manage all your accounts in one place, like Mint or Personal Capital, you’re looking at basically the same thing as a company’s COA. This numbering system helps bookkeepers and accountants keep track of accounts along with what category they belong two. For instance, if an account’s name or description is ambiguous, the bookkeeper can simply look at the prefix to know exactly what it is. An account might simply be net capital expenditure named “insurance offset.” What does that mean? The bookkeeper would be able to tell the difference by the account number.

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Thanks to accounting software, chances are you won’t have to create a chart of accounts from scratch. Accounting software products generally set you up with a basic chart of accounts that you can work with your accountant or bookkeeper to amend, according to your industry and your business’s complexity. A chart of accounts is a catalog of account names used to categorize transactions and keep your business’s financial history organized. The list typically displays account names, details, codes and balances.

The chart of accounts is like a map of your business and its various financial parts. Revenue accounts keep track of any income your business brings in from the sale of goods, services or rent. In accounting, each transaction you record is categorized according to its account and subaccount to help keep your books organized.

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2. It also ensures consistency in the way expenses are reported and simplifies bookkeeping tasks.
3. Take self-paced courses to master the fundamentals of finance and connect with like-minded individuals.
4. Similar to a chart of accounts, an accounting template can give you a clear picture of your business’s financial information at a glance.
5. An expense account balance, for example, shows how much money has been spent to operate your business, whereas a liabilities account balance shows how much money your business still owes.
6. A well-designed chart of accounts should separate out all the company’s most important accounts, and make it easy to figure out which transactions get recorded in which account.

QuickBooks Online automatically sets up a chart of accounts for you based on your business, with the option to customise it as needed. Your chart of accounts is a living document for your business, meaning, over time, accounts will inevitably need to be added or removed. The general rule for adding or removing accounts is to add accounts as they come in, but wait until the end of the year or quarter to remove any old accounts. A chart of accounts is a critical tool for tracking your business’s funds, especially as your company grows. Without a chart of accounts, it’s impossible to know where your business’s money is.

However, a profit and loss (P&L) statement overviews revenues and expenses. It’s not always fun seeing a straightforward list of everything you spend your hard-earned business boost centre money on, but the chart of accounts can give you an important view of your spending habits. You can get a handle on your necessary recurring expenses, like rent, utilities, and internet.