What Is a Chart of Accounts?

A chart of accounts (COA) is an index of all of the financial accounts in a company's general ledger. In short, it is an organizational tool that lists by category and line item all of the financial transactions that a company conducted during a specific accounting period.

How a Chart of Accounts Works

Large and small companies use a COA to organize their finances and give interested parties, such as investors and shareholders, a clear view and understanding of their financial health. Separating expenditures, revenue, assets, and liabilities helps to achieve this and ensures that financial statements are in compliance with reporting standards.

Here is a way to think about a COA as it relates to your own finances. Say you have a checking account, a savings account, and a certificate of deposit (CD) at the same bank. When you log in to your account online, you’ll typically go to an overview page that shows the balance in each account. Similarly, if you use an online program that helps you manage all your accounts in one place, like Mint or Personal Capital, you’re looking at basically the same thing as a company’s COA. You can see all your assets and liabilities on one page.

There is no single format for a chart of accounts. Typically, they all follow the essential structure described below. But the final structure and look will depend on the type of business and its size.

COA Structure

The COA is typically set up to display information in the order that it appears in financial statements. That means that balance sheet accounts are listed first and are followed by accounts in the income statement.

These primary accounts of assets, liabilities, shareholders' equity, revenue, and expenses can then be broken down into sub-accounts such as operating revenues, operating expenses, non-operating revenues, and non-operating losses.

In addition, the operating revenues and operating expenses accounts might be further organized by business function and/or by company divisions.

As an example, a small company COA might include these sub-accounts under the primary assets, primary liabilities, and primary shareholders' equity accounts:

Assets

• Cash
• Savings account
• Petty cash balance
• Accounts receivable
• Undeposited funds
• Inventory assets
• Prepaid insurance
• Vehicles
• Buildings

Liabilities

• Company credit card
• Accrued liabilities
• Accounts payable
• Payroll liabilities
• Notes payable

Shareholders' equity

• Common stock
• Preferred stock
• Retained earnings

Account Identifiers

To make it easy for readers to locate specific accounts or to know what they're looking at instantly, each COA typically contains identification codes, names, and brief descriptions for accounts. This coding system is important because the COA can display many line items for each transaction in every primary account. For example, a company may decide to code assets from 100 to 199, liabilities from 200 to 299, equity from 300 to 399, and so forth. Those could then be broken down further into, e.g., current assets (110-119) and current liabilities (210-219). The number of figures used depends on the size and complexity of a company and its transactions.

Many organizations structure their COAs so that expense information is separately compiled by department. Thus, the sales department, engineering department, and accounting department all have the same set of expense accounts. Examples of expense accounts include the cost of goods sold (COGS), depreciation expense, utility expense, and wages expense.

Special Considerations

COAs can differ and be tailored to reflect a company’s operations. However, they also must respect the guidelines set out by the Financial Accounting Standards Board (FASB) and generally accepted accounting principles (GAAP).

Of crucial importance is that COAs are kept the same from year to year. Doing so ensures that accurate comparisons of the company’s finances can be made over time.

Example

Here's one example of a chart of accounts.

The Bottom Line

A chart of accounts is a document that numbers and lists all the financial transactions that a company conducts in an accounting period. The information is usually arranged in categories that match those on the balance sheet and income statement. The chart of accounts is a very useful tool for the access it provides to detailed financial information for individuals within companies and others, including investors and shareholders.