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 1here 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 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 2these 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 2as an example a small company coa might include these sub accounts under the primary assets primary liabilities and primary shareholders equity accounts 3assetsliabilitiesshareholders equityto 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 45special considerationscoas 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 6of 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 7examplehere s one example of a chart of accounts 8my accounting course