A chart of accounts is a list of the accounts identified and made available for recording transactions in the general ledger. The company has the flexibility to change the chart of accounts to suit its needs. This allows it to select the best, including adding or removing accounts where needed.

Which accounts are used?

Within the chart of accounts, you will find that the accounts are generally listed in the following order.

Balance sheet accounts

Income statement accounts

  • Assets
  • Liabilities
  • Owner’s equity
  • Operating revenues
  • Operating expenses
  • Non-operating revenues and gains
  • Non-operating expenses and losses

With these categories, accounts can be further organized by business function and company divisions, product line and more.

A company’s organization chart can serve as the outline for its accounting chart of accounts and a chart of accounts will likely be as large and complex as the business entity itself. An international corporation might have thousands of accounts, while a small local business may only need around fifty or so.

What is the purpose of a chart of accounts?

It is to separate expenditures, revenue, assets and liabilities so that viewers can quickly get a sense of the financial health of a company. A well-designed chart of accounts not only meets the information needs of management but it also helps a company to comply with financial reporting standards. A company has the flexibility to change its chart of accounts to best suit its needs and this means that if a company is different from the norm, the chart of accounts can be changed so that it fits in with the company.