Commonly known as COA, the chart of accounts is a tool that lists each and every account used in the general ledger of a business. An accounting software basically uses this chart to gather information into the financial statement of an entity. In general, the COA is arranged with respect to the account number, so as to make the process of locating particular accounts easily. Thus, the chart of accounts contains the name of accounts, ID codes and their brief descriptions.
In actual fact, the COA works as the basis for the financial listing and records system of an organization. It delivers a sound structure that simplifies the inclusion of new accounts and removal of old ones. The accounts are usually recorded in the COA as per their presence in the financial statements of the company; where first comes the accounts for balance sheets and then the accounts for income statements.
Top 3 Reasons to create COA
- The most important reason of creating COA is to separate out expenses, liabilities, assets and revenues in order to allow viewers to summarily get the true impression of the financial health of the business.
- A well-made chart of accounts not just completely caters to the information requirements of the organization, but also aids a business to abide by the standards of financial reporting.
- The COA can be customized as per the company requirements. It gives organizations the flexibility within operating expenditures and operating revenues categories.
The chart of accounts can possibly be as complex and huge as the organization itself. This totally depends on the size of the organization; for instance, a multi-national company with more than a few divisions may require loads of accounts, while a small business owner like a local seller may want just few accounts. Thus, creating chart of accounts is the very first step you take while setting up your company’s accounting system. This chart of accounts is a framework that works as an index for all the financial accounts of your business and LedgerMax makes it very easy for you to create it in seconds! This is how it works: