What is a Base Account?
In a chart of accounts, base accounts refer to the fundamental accounts that are used to record basic financial transactions in a company’s accounting system. These accounts serve as the foundation upon which more detailed accounts are built.
Base accounts typically include the core balance sheet accounts. Examples are cash, accounts receivable, accounts payable, inventory, fixed assets, and equity accounts. They also include the primary income statement accounts. These include revenue, cost of goods sold, operating expenses, and non-operating income and expenses.
These accounts are considered “base” because they are essential to a company’s financial reporting and provide a framework for organizing more detailed accounts. For example, within the accounts receivable account, a company may have separate sub-accounts for different customers or types of sales. Similarly, within the cost of goods sold account, a company may have separate sub-accounts for different types of products or production processes.
Base accounts are generally considered to be standard accounts that are used by most companies in their chart of accounts. These are often organized in a hierarchical manner. The account numbers for base accounts typically start with a small number like 1000. This indicates that they are core accounts in the chart of accounts.
While base accounts provide a solid foundation for a company’s accounting system, they can be customized and expanded upon to meet the specific needs of each company. This flexibility allows companies to adapt their chart of accounts to their unique business operations and financial reporting requirements.