Have you ever come across the term ‘chart of accounts’ in finance industry of accounting firm? If no, you may be lacking something effective and essential thing in your business finance. But it’s never too late because you have found your way to the right article. If you want to secure your business transactions, finance, and financial records, make sure to keep your eyeballs here and read this article till the end. I will start from scratch and make you understand everything about charts of accounts.
So, without any much ado, let’s start this article.
What is the concept of chart of accounts (COA)?
Simply putting, chart of accounts is a rundown of account categories in bookkeeping. A business can use this to organize and manage financial transactions in the bookkeeping record of a business. So, the every transaction which is allocated to an account can easily be found on chart of accounts. If you can’t put the transaction into account, you can’t enter it in the system. You can say it is co-related with each other.
Let’s now move further and talk little more about it.
How does the chart of accounts work?
The process of chart of accounts is simple. Accounting firms use it to organize their finances and provide interested parties (like investors, debtors, shareholders) a clear picture into their financial health. Through COAs, you basically separate the expenditures, revenue, assets, and liabilities, to ensure that the financial statements are in compliance with reporting standards.
If you’re a small business, the COAs may include sub-accounts under the assets accounts which are:
- – Saving accounts
- – Cash
- – Inventory assets
- – Prepaid insurance
- – Petty cash balance
- – Undeposited funds
- – Accounts receivables
- – Buildings/vehicles
And the sub-account under liabilities account includes:
- – Accounts payable
- – Notes payables
- – Payroll liabilities
- – The company credit card
- – Accrued liabilities
All these divided categories help the readers to locate the specific accounts.
Where do you get to find a COAs?
Finding a chart of accounts is easy. You can easily find or locate it at the front of the bookkeeping books (ledgers) in manual bookkeeping records. In case, you’re using any bookkeeping software such as QuickBooks, Sage, Quicken, and many others, you can find it in the ‘Accounting menu.’ If you’re unable to find COAs, consider hiring virtual bookkeeping services in bakersfield.
How to create a chart of accounts?
You will now be thinking of how to create a chart of accounts for your business, right. Let’s talk about it here. In a book, you have a page of list of topics mentioned along with number of page, right. Same way the COAs also has a list of accounts which include:
- – A name for every account in the list
- – Number mentioned for each account
- – A short description for each mentioned account (the description is optional)
- – The balance
Let me tell you that whenever you set up new bookkeeping software, just make sure to create a chart of accounts list.
Why creating chart of accounts is important?
There is no doubt that you will surely have this question in mind, ‘what’s the importance of creating chart of accounts?’ Isn’t it? Let’s talk about it here. First off, you won’t be able to keep the financial transactions organized without having chart of accounts. Your COAs include general ledger accounts, individual account ledger, and reports.
So, the general ledger account must include the names of accounts found on COAs. And individual ledgers of each account must go by their name found on COAs. And the report shows the different account names. If you didn’t get it, you must hire accounting services in reno at reasonable price.
It’s time to end this article. You have read everything about chart of accounts; I hope you found this article helpful and interesting. If you also want to keep your bookkeeping, financial transactions, and business records organized, make sure to create COAs. I have talked about everything which can make your understanding of COAs broader. Moreover, you can also go with hiring bookkeeping services in atlanta for making your business smarter through professionals.
If you got any query or information to ask, just get in touch with us here. We will be happy to resolve your query.