Chart of Accounts (COA)
Candlefocus EditorThe chart of accounts takes the form of a simple bookkeeping spreadsheet that organizes each type of account into a separate column and contains a range of classification numbers and descriptions that identify each transaction. This classification system allows for easy tracking across different business units and time periods. The COA represents an important control measure that ensures that companies only record financial events correctly.
At the beginning of every business period, a company must create a chart of accounts that lists all its permanent accounts, as well as any temporary accounts needed for that particular period. The permanent accounts are identified with a long number, such as 1-101-000 for Assets, whereas any temporary accounts are identified by a short number, such as 1-120-000 for Unrealized Gain/Loss. These account numbers are used throughout a company’s financial records, from balance sheets and income statements to billing, purchasing and inventory.
The amount of information included in a chart of accounts varies from business to business. Generally, the most common accounts included in the COA include asset accounts such as cash, bank accounts, inventories and investments; liability accounts such as accounts payable and debt; and equity accounts such as capital, retained earnings and distributions. In addition to these core accounts, a company may have specialized accounts for items such as advertising expenses, research and development costs, construction costs, mergers and acquisitions, and more.
The chart of accounts acts as a roadmap for accounting operations in a business. It provides a structure that supports the efficient recording, tracking and reporting of financial data. It is one of the most powerful tools a business can use to gain greater insight into its financials and better manage its resources.