The Chart of Accounts is the foundation of accounting. Used to record transactions in the General Ledger, the Chart of Accounts should be tailored to suit your business’ needs.
In this video…
Greg here for On Track Business Management. In this video, we’re going to talk about chart of accounts.
Your chart of accounts is a listing of the names of the accounts that you’ve identified and have made available to record transactions in your general ledger. You should tailor your chart of accounts to best suit your company needs. Consider how detailed you want your financial reports to be. You’ll need a very well-planned chart to get meaningful and accurate financial statements.
Chart of accounts is the foundation of your account. Charts should be classified, and should have categories. A well-organized chart of accounts is needed for meaningful and accurate financial reports. Group the accounts into categories. Start with a logical numbering system, and leave room on used numbers, for instance, to add when necessary.
A chart of accounts will usually be organized in the following order: your balance sheet accounts, made up of assets, liabilities, owners’ or stockholders’ equity; your income statement accounts, made up of revenue; direct expenses, or job costs, overhead expenses; and the bottom line will result in your net profit. Keep your chart of accounts as simple as possible to start with. You can always add accounts as you need them.
In the next video, we’ll learn what the trial balance is used for.
Next Video: Trial Balance