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Chart of Accounts Example

Chart of Accounts is an important part of the accounting system and serves as a base for preparing accounts. It basically tells which account to use for recording the transactions into the journal. The chart of accounts lists all the accounts that a company uses in the accounting system. It does not include any other information about the accounts, including their balances, debits, and credits. For more understanding, refer to the chart of accounts example below;

Chart of Accounts Example

Below is the chart of accounts example. It is for ABC Electronic Repair Services

Number                    Account Description Account Type Statement
1000 Cash Assets Balance Sheet
1010 Accounts Receivable Assets Balance Sheet
1011 Allowance for Doubtful Accounts Assets Balance Sheet
1020 Notes Receivable Assets Balance Sheet
1030 Interest Receivable Assets Balance Sheet
1040 Service Supplies Assets Balance Sheet
1510 Leasehold Improvements Assets Balance Sheet
1520 Furniture and Fixtures Assets Balance Sheet
1521 Accumulated Depreciation (Furniture/Fixtures) Assets Balance Sheet
1530 Service Equipment Assets Balance Sheet
1531 Accumulated Depreciation – Service Equipment Assets Balance Sheet
2000 Accounts Payable Liabilities Balance Sheet
2010 Notes Payable Liabilities Balance Sheet
2020 Salaries Payable Liabilities Balance Sheet
2030 Rent Payable for Repair Shop Liabilities Balance Sheet
2040 Interest Payable Liabilities Balance Sheet
2050 Unearned Revenue Liabilities Balance Sheet
2060 Loans Payable Liabilities Balance Sheet
3000 Capital Owner’s Equity Balance Sheet
3010 Drawing Owner’s Equity Balance Sheet
4000 Service Revenue Revenue Income Statement
4010 Interest Income Revenue Income Statement
4020 Gain on Sale of Repair Equipment Revenue Income Statement
4999 Income Summary Revenue Income Statement
5000 Rent Expense Expenses Income Statement
5010 Salaries Expense Expenses Income Statement
5020 Repair Supplies Expense Expenses Income Statement
5030 Utility Expense Expenses Income Statement
5040 Interest Expense Expenses Income Statement
5050 Taxes and Licenses Expenses Income Statement
5060 Depreciation Expense Expenses Income Statement
5070 Doubtful Accounts Expense Expenses Income Statement

Chart of Accounts

How to Edit Chart of Accounts

In the future, if there is a new account, ABC company can adjust it between the same range of numbers. Usually, a company sets a range of numbers for a particular account type. In the above case, ABC has set numbers 1000-1999 for assets, 2000-2999 for liabilities, 3000-3999 for owner’s equity, 4000-4999 for revenues, and 5000-5999 for expenses.

For instance, if there is a new asset account for prepaid insurance. The company can list it as 1610, or any other number between 1000-1999 that has not been taken. If the numbers are taken, then the company can give it a sub-number, such as 1600 -1.

A proper way to edit the chart of accounts is that you can add any new account at any time during the year. But, to delete an old account, it is better to wait until the end of the year. Deleting an account in the middle of the year may lead to errors.

Suppose, a debtor declared bankruptcy sometime during the middle of the year, and thus, you don’t expect to get any money from him. So, you decide to remove this debtor from the chart of accounts. However, before the end of the year, the bank who was handling the bankruptcy makes you a part payment on the debtor’s behalf with an assurance of more payment going ahead. Now, you will have to make the debtor’s account again. On the other hand, if you had waited until the end of the year, you wouldn’t have to make any extra charges.

Best Practices

A company can improve the chart of accounts by following the below points;

Consistency –  one must try to create a chart of accounts that would not change for a few years at least. This allows the company to compare the results over a multi-year period.

Numbering – avoid concurrent numbers for your accounts because you may have to add more accounts in the future. If you don’t make provisions for future accounts now, you may not be able to add new accounts in the correct order.

Lockdown – if a company has subsidiaries, then it should make them follow the same pattern for the chart of accounts. This makes it easier to consolidate the results of all companies.

Periodical Review – it is important that a company reviews the chart of accounts from time to time. This will allow the company to weed out unused accounts and consolidate duplicate accounts. Such a periodical review helps the company to keep a check on the number of accounts.

Final Words

A point to note is that the chart of accounts of one company may not be suitable for another company. Different companies may have different looking charts of accounts. For instance, an automobile company’s chart of accounts will have many references to the “auto parts.” It won’t be wrong to say that the chart of accounts should be such that it gives an outsider a rough idea of the nature of the business.1,2

1.
The chart of accounts —  AccountingTools. AccountingTools. October 2019. [Source]
2.
Chart of Accounts: A Simple Guide (With Examples) | Bench Accounting. Bench. October 2019. [Source]
Last updated on : October 7th, 2019
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