Chart of Accounts Definition
The chart of accounts is a list with all the names of the accounts that a company has available to use. It can be added to or changed to suit the business needs. An example of this is manufacturing may need different codes to a retail business.
Most accounting software has a set chart of accounts (CoA) when it is setup. During setup, some of the more advanced software also includes the feature to choose your business type and will add additional codes for you.
Each account allows you to track transactions within the software and produce management reports, including Balance Sheet and Profit and Loss.
Importance of the Chart of Accounts
The chart of accounts is the foundation of the businesses accounting system. Using the wrong account code or not having enough codes will limit or produce incorrect reporting. The accounts list may also include codes which you do not require but is worth keeping for future use.
If you use an Excel spreadsheet, you will still have a list of accounts, although this may be simplified to a cloud accounting based software package. Our free Excel cashbook template allows you to name your accounts.
Chart of Accounts Numbering
Looking at different cloud accounting packages, each has its individual numbering system. We will look at a few. The bank and cash accounts on most accounting software are setup through banking rather than the CoA.
Xero CoA - taken from the demo
|Bank||090 - 199|
|Revenue||200 - 299|
|Direct Costs||300 - 399|
|Overheads||400 - 499|
|Current Assets||600 - 699|
|Fixed Assets||700 - 799|
|Current Liabilities||800 - 949|
|Equity||950 - 999|
|Assets||10000 - 19999|
|Liabilities||20000 - 29999|
|Equity||30000 - 39999|
|Income||40000 - 49999|
|Cost of Goods Sold||50000 - 59999|
|Expenses||60000 - 69999|
|Other Income||70000 - 79999|
|Other Expenses||80000 - 89999|
As you can see from the two examples, the number system is different. Xero uses smaller numbers than QuickBooks. Sage uses a different numbering system starting from 0010 and ending 9999. Don’t worry about the system you use as you will soon get used to the account codes and where to add them.
Chart of Accounts Example
Our example uses the numbering system from XERO. It is a simple set but will give an idea of how they are formatted. It is split between bank, income, direct costs, expenses, assets, liabilities and equity.
Download the above list in PDF format.
Non Profit Chart of Accounts
When setting up a non-profit, you will need to look at if you have any particular restrictions.
An example of this is if a donation is restricted for specific expenses. If there are restrictions; set up nominal codes to keep track of the balance for that fund. Another way of tracking restricted funds is to use classes or departments in some of the cloud accounting packages.
Most small non-profit organisations can work with a simple set of CoA.
Adding Nominal Codes
When you need to add new nominal codes to your CoA, it is worth checking first if there as a code already in use that is suitable for the purpose. If not, then chooses the best code number to use and complete the details. To check what information is needed, look at previous code details, which should help.
If you need to edit a nominal code, check to see the transaction already posted and if it will cause any problems to the previous transaction. In most cases, it is better to set up a new code.
Chart of Accounts UK
The UK is the same as for any other country; the main difference being is the VAT rates. When setting up nominal codes, there is usually a field for setting the VAT rate.
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