Structure of a Chart of Account

Structure of a Chart of Account

A chart of accounts is a list that consists of account names used by a company to record different business transactions in the general ledger. It offers guidance to accounting service providers or the business owners to use particular account names when inputting and posting transactions to the ledger.

Template or Structure

There is no standard structure or design template for a chart of accounts readily available for all kinds of businesses. Every business has its chart of accounts according to its functions. The template of a chart of accounts is typically as complicated as the company’s business structure. For instance, the amount and type of accounts required by a big corporation would substantially vary from those small sellers. Likewise, numerous accounts that used in merchandising business are not applied by the manufacturing business.

The number and type of accounts in the chart of accounts are based on a variety of elements, such as the requirement of internal management to make essential decisions, the volume and nature of the business and the requirement of external individuals who utilise the company’s financial statements for different functions.

The account names in the chart of accounts are organised in the same arrangement as the financial statement of the company. Generally, the balance sheet accounts are first listed, then profit and loss are listed next.

The Numbering of the Accounts

Every account in a chart of accounts is appointed a special number for identification and indexing. Usually, every account number includes two or more numbers that indicate some information about the account. For instance, a number beginning with “1” shows that it is an account of assets while a digit starting with “2” informs us that it is an account of liability. Generally, appropriate spaces are reserved between numbers to make it simple to include more accounts without affecting other accounts.

Companies that run in many places with many departments would have account numbers, including five or more numbers. Companies that have different functions and departments would have different account numbers to identify which account to which region. To illustrate, an international company’s account numbers have more than 30 digits to show various operations, departments and areas or territories. This is really a massive task to handle without the help from accounting firm in Johor Bahru.