What is a Chart of Accounts?

The accounts that a business employs in its accounting system to record financial transactions are listed in a chart of accounts. It offers a structured method for classifying and arranging financial activities. This enables businesses to create accurate balance sheets, income statements, and cash flow statements.

The chart of accounts typically includes a listing of all the base accounts. These are the accounts that reflect the company’s assets, liabilities, and equity. It also includes a listing of all the income statement accounts. These reflect the company’s revenue and expenses.

Each account is assigned a unique account number, which helps to identify and classify each transaction. The account numbers are usually structured in a hierarchical order, with larger categories at the top and more specific accounts at the bottom.

The chart of accounts can be customized to meet the specific needs of each company. For example, a small business might have a simple chart of accounts with only a few accounts. On the other hand, a larger corporation might have a more complex one with multiple levels and many accounts.

Hedgi includes standardized Chart of Accounts for each industry as defined by the IRS.

Having a well-designed chart of accounts is critical to ensure the accuracy and efficiency of a company’s financial reporting. It also helps to facilitate financial analysis and decision-making, by providing a clear and organized view of a company’s financial performance.