Chart of Accounts COA Definition & Set Up

charts of accounts definition

For example, a company may decide to code assets from 100 to 199, liabilities from 200 to 299, equity from 300 to 399, and so forth. Those could then be broken down further into, e.g., current assets ( ) and current liabilities ( ). The number of figures used depends how much does an accountant cost on the size and complexity of a company and its transactions. It provides specific account codes used to record transactions related to each category. For example, code 400 is used to record rent expenses, while code 500 is used to record salaries and wages expenses.

Intuit does not endorse or approve these products and services, or the opinions of these corporations or organizations or individuals. Intuit accepts no responsibility for the accuracy, legality, or content on these sites. Within each category, line items will distinguish the specific accounts.

What is the standard chart of accounts?

Separating expenditures, revenue, assets, and liabilities helps to achieve this and ensures that financial statements are in compliance with reporting standards. Add an account statement column to your COA to record which statement you’ll be using for each account–cash flow, balance sheet, or income statement. For example, balance sheets are typically used for asset and liability accounts, while income statements are used for expense accounts. A chart of accounts is a small business accounting tool that organizes the essential accounts that comprise your business’s financial statements.

They are used to prepare financial statements together with the balance sheet and the statement of changes in equity. It helps ensure consistency and standardization in financial reporting across the organization. This makes it easier to compare financial data over time and across different departments. Yes, it is a good idea to customize your chart of accounts to suit your unique business.

charts of accounts definition

Whether you’ve started a small business or are self-employed, bring your work to life with our helpful advice, tips and strategies. At the end of the year, review all of your accounts and see if there’s an opportunity for consolidation. Here’s how to categorize transactions in QuickBooks Online and navigate the COA. Many or all of the products featured here are from our partners who compensate us. This influences which products we write about and where and how the product appears on a page.


Assets and liabilities are split into current and noncurrent categories, respectively. The COA provides specific account codes used to record transactions related to each category. Equity accounts are important in determining the financial health of an enterprise.

  1. The income statement would include all of ABC Company’s revenue and expense accounts, also organized based on the categories in the COA.
  2. It helps to categorize all transactions, working as a simple, at-a-glance reference point.
  3. After almost a decade of experience in public accounting, he created to help people learn accounting & finance, pass the CPA exam, and start their career.
  4. But experience has shown that the most common format organizes information by individual account and assigns each account a code and description.

When setting up a chart of accounts, typically, the accounts that are listed will depend on the nature of the business. For example, a taxi business will include certain accounts that are specific to the taxi business, in addition to the general accounts that are common to all businesses. All employees should use the same account names, numbers, and categories when recording financial transactions. This consistency ensures that financial reports are accurate and reliable. The income statement would include all of ABC Company’s revenue and expense accounts, also organized based on the categories in the COA.

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That means that balance sheet accounts are listed first and are followed by accounts in the income statement. COA is a critical component of any business’s financial management system. It provides a framework for accurate financial reporting, easy tracking of financial transactions, improved decision-making, consistency and standardization, and compliance with accounting standards.

In addition, it should include all necessary accounts and be easily understandable to users. It offers a methodical technique to classify and arrange financial data, making it simpler for businesses to produce financial reports and evaluate their financial performance. First, let’s look at a real-world illustration to further comprehend the significance of a COA.

Expense accounts

Businesses must consider several special considerations when creating and maintaining their chart of accounts. In conclusion, a COA is essential for businesses to organize and categorize financial information. For instance, if an employer issues additional shares of stock for $100,000, the capital stock account may be credited with $100,000, and the cash account might be debited with $100,000.

QuickBooks Online automatically sets up a chart of accounts for you based on your business entity with the option to customise it as needed. Find out more about how QuickBooks Online can help you save time, stay on top of your finances and grow your business. Read on to learn about the importance of a chart of accounts and how to create one to keep track of your business’s accounts.

These accounts are separated into different categories, including revenue, liabilities, assets, and expenditures. Revenue accounts capture and record the incomes that the business earns from selling its products and services. It only includes revenues related to the core functions of the business and excludes revenues that are unrelated to the main activities of the business. Typically, when listing accounts in the chart of accounts, you should use a numbering system for easy identification. Small businesses commonly use three-digit numbers, while large businesses use four-digit numbers to allow room for additional numbers as the business grows.

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