Sample Chart of Accounts for a Small Company

Small businesses with fewer than 250 accounts might have a different numbering system. Some of the components of the owner’s equity accounts include common stock, preferred stock, and retained earnings. The numbering system of the owner’s equity account for a large company can continue from the liability accounts and start from 3000 to 3999. In the sample chart of accounts for example, the expense accounts are sub-divided into business functions such as research and development, sales and marketing, and general and administrative expenses. As time goes by, you may find yourself wanting to create a new line item for each transaction.

  1. If you choose to spread Meals across relevant categories, you’ll want to still keep them in discrete accounts within each category.
  2. As a matter of fact, this high-level review provides a perfect segue into our next topic.
  3. Start with a free account to explore 20+ always-free courses and hundreds of finance templates and cheat sheets.
  4. This influences which products we write about and where and how the product appears on a page.

If you take a block away from one section of your business, you have to add it back someplace else. A chart of accounts lists down all accounts used by an entity in its accounting system. The chart of accounts is designed to be a map of your business and its various financial parts. Revenue accounts keep track of any income your business brings in from the sale of goods, services or rent.

Although most decent accounting software packages will generate and maintain these identifying numbers for you, it’s still a good idea to have a solid understanding of the underlying system. The chart of accounts provides the name of each account listed, a brief description, and identification codes that are specific to each account. The balance sheet accounts are listed first, followed by the accounts in the income statement. The exact layout of the accounting chart of accounts is a matter of choice depending on the exact reporting requirements of the business.

Chart of Accounts: A Complete Explanation with Examples

The important point to remember is not to over complicate the chart of accounts. This sample chart of accounts structure allows the business to easily identify accounts and account codes enabling transactions to be posted and the trial balance and financial statements to be prepared. It’s safe to assume larger companies will typically have more transactions and accompanying GL accounts than smaller ones. Thus, a five-digit numbering system – rather than three or four-digits – gives a large company more room to break out detailed accounts. These could include accounts like COGS, depreciation on fixed assets, sales returns, common stock, and others that small business owners might not need, at least in such detail.

What is a Chart of Accounts? A How-To with Examples

Of course, your particular industry will also determine how you customize your COA. While account identifier categories for the tangible costs of wells and development make sense for an upstream oil and gas company’s COA, they’d obviously be irrelevant for a chain of bakeries. Specifically, online quickbooks expert training you want to use an identifier numbering system that provides plenty of real estate for you to add account categories down the road without having to reinvent the COA wheel. Let’s say you sell an asset – not including inventory – for greater than that asset’s book value.

For example, what if there’s a significant change in a technical accounting standard coming up in a couple of years? If you build out your COA according to the current standard, you’re going to be left scrambling to integrate the new standard in a very short amount of time. Instead of lumping all your income into one account, consider what your various profitable activities may be and sort them by income type. When you can see which locations or events bring in the most cash flow, you can manage your business more wisely. The accounts are identified with unique account numbers, and are usually grouped according to their financial statement classification.

Chart of Accounts examples:

Instead of recording it in the “Lab Supplies” expenses account, Doris might decide to create a new account for the plaster. Back when we did everything on paper, you used to have to pick and organize these numbers yourself. But because most accounting software these days will generate these for you automatically, you don’t have to worry about selecting reference numbers. This way you can compare the performance of different accounts over time, providing valuable insight into how you are managing your business’s finances. An expense account balance, for example, shows how much money has been spent to operate your business, whereas a liabilities account balance shows how much money your business still owes.

Unlike some foundational problems, a chart of accounts can be optimized relatively quickly. A well-executed remodel can generally be implemented within a month and have a noticeable effect on financial reporting immediately. Most companies choose a metric such as labor hours and estimate a rate per labor hour that “uses up” these indirect costs over the course of a month or year. For example, consider a simple manufacturer who last month had $1,000 of manufacturing supplies and $1,000 of shop repairs, for a total of $2,000 of indirect expenses.

Today, the chart of accounts is an integral part of accounting software, and its use is widespread across various industries and organizations. The Industrial Revolution brought about significant changes in business structures and increased the complexity of transactions. During this period, businesses recognized the need for more structured and standardized accounting systems.

Maximize the functionality of your accounting software.

Building some level of detail into the chart of accounts is a practical way to ensure key information is always in the face of the management team. 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. The Chart of Accounts is one of those unknown parts of your accounting software we don’t even think about.

This coding system can be broken down into further categories and details depending on the amount of listings and how detailed the company wants the chart of accounts to be. Similarly, suppose you are drastically expanding your lines of business in the near future. In that case, it just makes sense to set up your COA to incorporate those new lines – or even new accounts, if necessary – even if they aren’t operational for another year or two. This way, you’ll have room in your numbering system to add multiple cash accounts, cost accounts, or whatever else you might need. These accounts equate to the equity value remaining in your business after deducting your liabilities from your assets. In short, this is a way to measure how valuable your organization is to its owners.

Marketing expenses is another expense account to track promotional costs. The COA also includes accounts for online payment systems to monitor digital transactions. 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 streamlines various asset accounts by organizing them into line items so that you can track multiple components easily. Asset accounts can be confusing because they not only track what you paid for each asset, but they also follow processes like depreciation. The chart of accounts lists the accounts that are available for recording transactions.

There’s often an option to view all the transactions within a particular account, too. Small businesses may record hundreds or even thousands of transactions each year. A chart of accounts (COA) is a comprehensive catalog of accounts you can use to categorize those transactions.