In business accounting, a chart of accounts (COA) is a detailed list of accounts used by the respective business. It’s purpose is to define the class of items that the business pays for while also organizing the business’s finances. A typical COA contains lists the type of account and number associated with the account. Normally, account numbers in COAs are at least five digits in length. Each of these digits represents a different division within the company or department.
By defining the class of items for which a business pays, COAs help to segregate various transactions. A COA, for instance, separates expenses from revenue, allowing businesses to see a general overview of their organization’s financial health. While other lists can also reveal a business’s financial health, COAs are simple and easy to create, assuming you know how they work.
So, how are accounts listed on COAs exactly? Normally, they are listed in the order of their appearance on bank and financial statements. This means balance sheet accounts are listed first, followed by asset accounts, liability accounts, equity accounts, etc. However, being that most countries do not have a standard COA — including the United States — some companies may format their COA in a different manner. The key thing to remember when creating a COA is that it should be consistent with your business’s past practices. If use a different format, stick with that format instead of changing to a new format.
There are many different types of accounts, each of which has its own specific use. An asset account, for instance, may include bank accounts with a positive balance, cash, goodwill and accounts receivable. A liability account, on the other hand, represents debt and other financial obligations of the business, including bank loans, credit cards, bonds payable, etc. Other types of accounts used in COAs include equity accounts, revenue/income accounts, expense accounts and contra accounts.
Of course, COAs are also an important part of Quickbooks. Whether it’s Quickbooks Online or Quickbooks Desktop, a COA follows a similar principle by listing all accounts — asset, liability, equity, expense, etc. — used in a business’s transactions. This is perhaps one of the most important elements of Quickbooks accounting, as it helps to keep a business’s financial information and transactions properly organized.
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