To create a COA for your own business, you will want to begin with the assets, labeling them with their own unique number, starting with a 1 and putting all entries in list form. The balance sheet accounts (asset, liability, and equity) come first, followed by the income statement accounts (revenue and expense accounts). While the chart of accounts can be similar across businesses in similar industries, you should create a chart of accounts that is unique to your individual business.

Liability accounts also follow the traditional balance sheet format by starting with the current liabilities, followed by long-term liabilities. The number system for each liability account can start from 2000 and use a sequence that is easy to follow and compare in different accounting periods. Wrapping it up, the chart of accounts has evolved alongside accounting practices, shaping a standard framework for organizing finances. From medieval record-keeping to today’s digital era, it’s become a business’s backbone, aiding in accurate record-keeping, financial analysis, and regulatory compliance. As a fundamental guide, the chart of accounts continues to play a vital role in modern finance management worldwide.

AccountingTools

If you’re using accounting software and want to set up a customized chart of accounts, you can add or edit parent and sub-accounts to the existing default chart of accounts. Doing this will help you stay organized and better understand how your business is doing financially. The chart of accounts allows you to organize your business’s complex financial data and distill it into clear, logical account types. It also lays the foundation for all your business’s important financial reports. Charts of accounts are an index, or list, of the various financial accounts that can be found in your company’s general ledger. These accounts are separated into different categories, including revenue, liabilities, assets, and expenditures.

A company’s organization chart can serve as the outline for its accounting chart of accounts. Each department will have its own phone expense account, its own salaries expense, etc. Although the 3 digit chart of accounts numbering system is commonly used there is nothing to stop a business chart of accounts numbering opting for a 4 digit account code structure allowing for up to 10,000 (0-9,999) separate accounts. As time goes by, you may find yourself wanting to create a new line item for each transaction. However, doing so could litter your company’s chart and make it confusing to navigate.