Chart of Accounts - Explained
What is a Chart of Accounts?
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Table of ContentsWhat is a Chart of Accounts?How is a Chart of Accounts Used? Academic Research for Chart of Accounts
What is a Chart of Accounts?
A chart of accounts is a list of elements necessary to undertake an accounting of operations performed by a company. The list of accounts has these elements; assets, liabilities, and owners capital in addition to revenues and expenses received and incurred respectively.
How is a Chart of Accounts Used?
The chart of accounts enables the simplification of bookkeeping and accounting. For instance, in activities that impact on the social capital, it is necessary to show the establishment of numbering in the chart of accounts in this would be 100. There is splitting up of elements at different levels in the table of accounts from more generic to more concrete as per the following; The group is the maximum general level, and numbering is based on digits. The chart of accounts is divided into nine groups namely; basic financing, non-current asset, stock, creditors, and debtors for various operations, financial accounts, purchases and expenses, sales and income, expenses credited to net worth, income recognized to net worth. For example, basic financing corresponds to group one. The subgroup has a lesser generic range compared to the Group. It is represented by a double coded number. For instance, Tangible fixed assets subgroup is represented by 21 while 44 referring to various debtors. The account is the highly used subdivision in accounting, and it is represented by triplet digit number. Use of accounts is important because accounts are concrete in addition to being less complex than the sun account. Accounts examples include; customers accounts coded by 430 and 640 referring to wages and salaries. It is the most specific level presented by the chart accounts and represented by a quadrat digits number. It is not compulsory for companies to apply the use of a chart of accounts. It is at the discretion of the company to use this chart of account or develop theirs as done by many because this one provided by General accounting Plan may have insufficient specifications. There are some companies applying account tables that are more convenient and confidential. Chart of accounts is handy for smaller companies in guiding them to undertake their accounting. Besides the above charts; there is Chart of SME accounts that are more simplified than the general one and is meant for small and medium-sized institutions.