What is a Chart of Accounts?
Posted in accounting, PayTraq U, 101
Any time you are establishing an accounting structure for your business, a chart of accounts is among the first things you will need to put in place to get your bookkeeping up and running.
Fortunately, with an outstanding web-based accounting system, establishing your chart of accounts is simple to perform, and in no time, you will be on the road to setting up your company’s financial records!
Before we discuss just what you’ll find in a chart of accounts, we have to answer these questions - what, exactly, a chart of accounts is and why it’s so important.
A chart of accounts is an ordered listing of the names of the accounts that a company has identified and made available for recording transactions in its general ledger. Each financial transaction is assigned to a specific account. For example, a business needs and should want to know where the money is coming from and where it is going! Each time you record money coming into the business, your income, or money going out of the business, your expenses, you will associate the transaction with an account listed in your chart of accounts. Your chart of accounts is a tool for gathering and organizing this type of information.
A company has the flexibility to tailor its chart of accounts to best suit its needs, including adding accounts as needed.
Each account in the chart of accounts is assigned a name and a unique number by which it can be identified. Account numbers are often four or sometimes more digits in length, e.g. 1200 - Bank account
The chart of accounts in fact is the foundation of your company’s entire bookkeeping system. Picture it like a huge filing cabinet, in which every single file is one of your company’s accounts, each and every one effectively arranged in such a way that you are able to conveniently maintain and report important current financial details concerning your business. You need this type of information to make wise decisions and to expand your business. Additionally, it will be helpful when revealing details about your company’s financial track record to others, such as partners, investors or shareholders.
What kinds of business accounts are going to be in the chart of accounts? It will depend on the kind of business you are operating and your accounting requirements.
We mentioned at the beginning of this article that the chart of accounts includes a description of accounts listed. Part of this description include Account Type, account may be a debit account or credit account (i.e., whether the account will increase or decrease when debited or credited).
Choosing the proper accounting software program can be very helpful when it comes to setting up your chart of accounts, because the list of accounts could be customized to your individual business.
When you first set up you accounting software, PayTraq choose a default chart of accounts depending on the country in which your company is registered. As your company grows and evolves, your chart of accounts can be altered with it: you can easily edit, add brand new accounts in the default chart of accounts, or make inactive the ones that are not used anymore. You can access your chart of accounts anytime and you can have as many accounts as you wish.
View your chart of accounts easily: My Company-> Settings-> Accounting-> Chart of Accounts