Do you have the required accounts for your business? Learn how to create a chart of accounts through an explanation of a sample chart of accounts in this helpful Bright Hub article.
slide 1 of 3
What is a Chart of Accounts?
A chart of accounts lists all of the accounts that are tracked in the general ledger. The chart of accounts depends on the accountant already having determined what the required business accounts will be. All required accounts should be defined.
Once you have defined your accounts, then you should assign each account a numeric code. Your numeric code will help you to identify the account. This number should be at least three digits (for a small business) but preferably four or more digits to allow for the possibility that you will add more accounts as your company grows.
One more note, space out your account numbers so that you may place a new account between any two accounts. For example, it would be prudent to code your accounts at least ten digits apart to allow for the addition of new accounts later. Remember, too, that the types of accounts you will have on your sample chart of accounts will differ from those of other businesses depending upon your industry, how long you have been in business, and your business structure.
slide 2 of 3
What is the Account Order for a Chart of Accounts?
You should list the accounts in the same manner you would list them on a balance sheet. This means that for each category of account, you should list the most easily liquidated items, like cash and bank accounts, first and then the least easily liquidated accounts, such as fixed assets, last.
By being mindful of the order you list your accounts on the chart of accounts, you can help make your chart easily readable to accountants and tax lawyers should they need to review the list. By assigning numbers to each account, you make it easy to identify exactly what journal and general ledger entry pertains to which account.
Be sure you list your accounts in numerical order. Otherwise, things could become quite confusing. Assets should be listed first and Misc. accounts should be listed last.