Chart of Accounts is a list of all the accounts that are used in a company. It contains all the assets, liabilities, capital and income. You can think of them like categories that help you to segment your transactions.
It is very important for a company to have an accurate Chart of Accounts because it will help them to keep track of their financials. It will also help them to prepare reports such as Balance Sheet and Income Statement with more accuracy.
The Chart of Accounts are listed as follows from top to bottom:
In some systems, your transactions will be categorized by name and without numbers. For example, if you own a private practice, Telephone charges, could be recorded under an expense called Telephone Expense. In another company, Telephone Expense may be listed as 71234 - Telephone Expense. Both are acceptable ways of using the Chart of Accounts.
The Chart of Accounts should be updated periodically to reflect changes in the business, such as new acquisitions or disposals. If an account is not listed on the chart then there should be an explanation for its omission from the chart.
Setting up a new Chart of Accounts can be intimidating as it may be a daunting task to create several accounts. A bookkeeper can create a custom Chart of Accounts for you to save you the trouble of making one for your business.