There’s nothing special about the balance sheet accounts you use within your COA since they flow into the balance sheet you already know and love. Now, according to the standard definition of a COA, it should focus on the many different accounts tying into your company’s general ledger. And while your GL certainly plays a significant chart of accounts numbering role, our advice is not to be so hyper-focused on the GL that you fail to integrate other dimensions and company attributes into your COA. Obviously, that makes your chart of accounts essential to a host of different people and groups, from your decision-makers and stakeholders to potential investors and lenders.
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What Is a Chart of Accounts and Why Is It Important?
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The sample chart of accounts template will help you to produce your own chart of accounts, and is available for download in Excel format by following the link below. The account names will depend on your type of business, but the classification and grouping should be similar to the sample chart of accounts. Department code – This is usually a two-digit code that identifies a specific department within a company, such as the accounting, engineering, or production departments.
Add financial statements
As your business grows, so will your need for accurate, fast, and legible reporting. Your chart of accounts helps you understand the past and look toward the future. A chart of accounts should keep your business accounting error-free and straightforward. This will allow you to quickly determine your financial health so that you can make intelligent decisions moving forward. As time goes by, you may find yourself wanting to create a new line item for each transaction.
- For example, companies in the United States must have certain accounts in place to comply with the tax reporting requirements of the IRS (Internal Revenue Service).
- For example, a well-designed chart of accounts makes it easy for bookkeepers and accountants to figure out which financial transactions should be recorded into which general ledger account.
- This structure can avoid confusion in the bookkeeper process and ensure the proper account is selected when recording transactions.
- While making a chart of accounts can be time-consuming, it’s an important tool for understanding the financial health of your business.
- They basically measure how valuable the company is to its owner or shareholders.