The importance of the Chart of Accounts

 The Chart of accounts or (COA) is a listing which is split into two sections, one for the Balance Sheet accounts and one for the Profit & Loss accounts. Each section contains the names and unique numbers used to identify and record all transactions for the accounting of any business, large or small.

Every account within your accounting system will be listed in numerical order and will normally give you gaps between each number in order for you to create additional codes to tailor the chart of accounts to your business. For example, the first account number could be prefixed with 1 followed by 000, 001, 002 etc. So, your Balance sheet starting with your assets would start at account 1000 and run to 1200, then your Liabilities could all be prefixed with 2, and equity with 3. Your Profit & Loss account containing your income and expenses would then start at 4000 and finish with taxes at 9000. This makes everything very easy to identify and reports can be run by account numbers.

Balance sheet

The Balance Sheet is a very important financial statement consisting, in essence of of Fixed Assets, items that you have purchased over a certain value such as property, goodwill, vehicles, stock etc which would normally be depreciated over more than one year and current assets such as Debtors (monies owed to the company) and bank balances. Liabilities, consisting of monies owed by the company to creditors (suppliers) bank loans, HP agreements, accrued expenses and taxes and Equity, the capital invested in the company and any retained earnings which consist of profit or loss from prior periods.

Profit & Loss

The Profit & Loss account also referred to as the Income Statement gives you a trading snapshot of the business for a specific time period. Covering the sales less any costs incurred to make the sales giving you your gross profit less your overheads which will then give you your net profit.

Standard Reports

All cloud accounting systems will have the standard financial reports, these are essential reports for any accounting package as these are the building blocks for the management accounts package. When running a financial report such as the balance sheet the system will pickup all of the information linked to the codes relating to the balance sheet to produce your report for the dates selected. You can also include an additional layer of coding to your chart of accounts in the form of Account Categories this will allow you to build and tailor additional reports by linking various codes together giving you a more high level report.

Need to create your own Chart of Accounts?

A great tool for accountants and consulting practices is the ability to create and upload your own chart of accounts into an accounting system. This could be due to your company being quite bespoke so the need for more account codes than usual in a certain area or as an accounting practice you would like all of your clients to have the same. A lot of cloud accounting systems give accountants the ability to create chart of account templates for their SME’s and self-employed clients which can be copied over, this saves so much time and makes consolidation so much easier. The alternative would be to start with a standard chart of accounts, which in Reviso we call a ‘default setup’ and then modify this to suit your business.