Chart of accounts - What is the chart of accounts?

The chart of accounts (COA) defines the financial structure of an organisation by recording the account codes that provide structure for the nominal or general ledger

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The Chart of Accounts or COA is a list of all the accounts, or nominal codes as they are called in the nominal or general ledger, summarised in a systematic manner to represent the sequence on financial statements.

These accounts or nominal codes are normally divided into five groups: assets, liabilities, owners/shareholders equity, revenue and expenses. They’re divided in this way so that they can be grouped together for reporting purposes and are easily identifiable.

For example: all asset nominal codes have the prefix of 1, all liabilities have the prefix of 2, etc.

Assets:

• 1010 - Cash
• 1020 - Accounts receivable
• 1030 - Interest received

Liabilities:

• 2010 - Accounts payable
• 2020 - Interest payable
• 2030 - Utilities payable

Organisation - debits and credits

Each transaction entered into an accounting system must have a nominal code attached to it in order for that transaction to be traceable and, for every transaction which is debited to a nominal code, a corresponding credit will be posted to another nominal code.

This forms the basis for the double-entry bookkeeping system whereby each entry is stored twice - once as a debit and once as a credit.

When you run your trial balance (a report which shows you the balance against all nominal codes with your chart of accounts), the debits should equal the credits.

Why it’s important

The Chart of Accounts provides companies with a way to view their accounts based on category, which provides a clear picture of the financial health of the company.

Because the COA can be tailored to fit the particular needs and financial interests of a company, it provides a customised view of the accounts and information relevant to a business. The COA can grow with a company to include new categories by leaving gaps in the coding system.

COA and Debitoor

With Debitoor, your Chart of Accounts is built-in. When you enter a debit, you can match it with a corresponding credit as soon as payment is received.

Your home page provides a series of graphs that allow you to visually track your revenues, expenses, any outstanding payments, as well as balances for linked bank and current accounts.