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Working with the Chart of Accounts
The Chart of Accounts (COA) is a formal index of your accounts that track the financial activity and financial position of your business. There are two major categories of accounts (a record of financial transactions):
- The Profit and Loss (P&L) records the financial activity, and
- The Balance Sheet records the financial position.
If you are working without an accountant studying the video tutorials will provide you with guidelines on how to build your own. See Setting the Chart of Accounts.
When you have designed and created your Chart of Accounts you can add, edit and remove accounts as and when required.
Five major types of Account
There are five major types of Account:
- Balance Sheet Accounts:
- Equity Accounts.
- Profit and Loss Accounts:
The table below gives a brief description of each available account type:
|Account Type||Typically used for|
|Balance Sheet Accounts||Balance sheet accounts summarise the financial condition of your business|
|Assets||What your business owns|
|Petty Cash||Tracks money not deposited in a bank, typically cash in hand.|
|Bank||Tracks amounts held at financial institutions, typically current, savings or investments accounts.|
|Inventory Asset||Tracks products purchased and held as stock.|
|Other Current Asset||Tracks tangible Assets that have a life span of less than one year and can easily be turned into cash, such as Pre-Paid expenses, Accounts Receivable or shares owned by the business.|
|Fixed Asset||Tracks depreciable Assets purchased and used by your business, typically equipment such as computers, furniture and buildings.|
|Other Asset||Tracks non-current Assets that are not Fixed Assets; they have a life span of more than one year and can be turned into cash in more than one year, typically long-term deposits, patents, copyrights and goodwill.|
|Liabilities||What your business owes|
|Credit Card||Tracks the balance of Credit Cards.|
|Payroll Liability||Tracks the amounts you accrue (owe) for Payroll.|
|Current Liability||Tracks debts or obligations that are due within one year such as accrued or deferred expenses and salaries, Accounts Payable, customer prepayments and short-term loans.|
|Long Term Liability||Tracks debts or obligations that are due in more than one year such as mortgages and loans.|
|Equity||Capital invested or profit retained in your business. Tracks capital invested by shareholders and retained earnings.,Retained earnings is the net balance of profit retained in your business through the end of a financial period typically a financial quarter or year.|
|Profit and Loss Accounts||Profit and Loss Accounts summarise the financial activities in your business to help you determine if you are making a profit or a loss.|
|Income||The revenue generated by your business. Tracks revenue from sales of products or services.|
|Other Income||Tracks amounts from sources other than sales such as interest from bank accounts, sales of fixed assets, foreign exchange gains and losses.|
|Expenses||The costs incurred by your business. Tracks fixed and variable amounts spent on the operation of your business|
|Cost Of Goods Sold||Tracks the base cost of creating or obtaining a product that you stock and then sell.|
|Other Expense||Tracks amounts spent on activities not directly related to your day to day business, typically bank charges and interest.|
|Mileage Expense||Tracks mileage expenses, typically used on Employee Expense claims.|
The relationship between Items and the Chart of Accounts
Items are the products and/or services that your business buys and sells.
When you create a new Item Document you specify the Accounts (within the Chart of Accounts) that the Item affects when it is placed on a Transactional Document, such as a Sales Invoice or Bill. This represents the relationship between your everyday activities of buying/selling, correlating with the underlying accounting system. See Working with Items.
Also Read About
Setting the Chart of Accounts
Working with Accounts
Working with General Journals
Working with Items
Viewing Document Account Entries