A chart of accounts is essentially a comprehensive list of all account titles used by a company. Typically, these accounts are divided into five main categories:
- Asset Accounts: These accounts record what the company owns.
- Liability Accounts: These accounts track what the company owes, such as unpaid bills and invoices for purchases. They are termed liability accounts because they represent the company’s financial obligations.
- Owners’ Equity Accounts: These accounts document the amount invested and withdrawn by the owners.
- Revenue Accounts: These accounts record income from sales of products and services.
- Expense Accounts: These accounts log expenses incurred by the company, reflecting goods and services consumed.
To simplify identification, each account is assigned a unique number. For instance, in a company with 250 accounts, it’s easier to locate account #230 than searching for “Rent Payable.” Each account category is designated a specific numerical range: asset accounts might use numbers from 100-199 (or 1,000-1,999), while liability accounts could fall within 200-299, and so forth.
This numbering system ensures that each account is distinct and consistently referred to in daily journals and the general ledger. It is essential to list every account along with its assigned number in the Chart of Accounts.
Although there is no strict rule for numbering accounts, most companies organize their chart of accounts similarly to the example provided below. You can add new accounts to any section at any time. If you no longer use a particular account, avoid reassigning its number to another account within the same fiscal year to prevent confusion, such as misposting expenses, revenues, or liabilities to the wrong account.
Example Chart of Accounts
Assets
- 100: Cash
- 105: Petty Cash
- 110: Accounts Receivable
- 115: Office Supplies
- 120: Prepaid Rent
- 125: Equipment
- 126: Accumulated Depreciation
- 130: Automobile
- 145: Inventories
Liabilities
- 201: Accounts Payable
- 205: Salaries Payable
- 210: Note Payable – ABC Bank
- 215: Accrued Payroll Taxes
- 220: Accrued Insurance
- 285: Note Payable – Equipment
Capital
- 300: Charles Bell, Capital
- 305: Common Stock
- 315: Profit/(Loss)
- 325: Retained Earnings
- 335: Drawing
Revenues
- 400: Sales – Widgets
- 402: Sales – PC Boards
- 405: Service Charges Imposed
- 410: Misc. Income
Expenses
- 501: Salary – Supervision
- 502: Salary – Clerical
- 503: Commissions
- 505: Indirect Labor
- 510: Rent Expense
- 515: Stationery and Office Supplies
- 516: Postage
- 520: Depreciation Expense
- 525: Operating Supplies
- 530: Motor Vehicle Expense
- 540: Heat, Light and Water
- 545: Telephone
- 560: General Insurance
- 565: Group Health Insurance
- 570: Repairs and Maintenance – Building
- 575: Advertising
- 580: Dues and Subscriptions
- 585: Travel and Entertainment
- 599: Unclassified (Sundry, Misc.)
This structured approach to creating a chart of accounts ensures clarity and ease of management for financial transactions within the company.
