What is a Chart of Accounts (COA)?

Why is a Chart of Accounts (COA) important for your bookkeeping practices?

A Chart of Accounts (COA) is a list of the accounts that an organization has identified for recording and allocating transactions in its general ledger. Within this chart, which is typically created in accounting software or spreadsheets, accounts are usually assigned a name and occasionally a number that will help identify each transaction. The selection of accounts is up to each organization and should be tailored to mirror the organization’s activities. The organization has the flexibility to add or remove accounts and subaccounts as needed; however, an organization should aim to stay consistent between years in order to easily make accurate financial comparisons from year to year. 

A COA should also stay consistent with the accounts that will appear on Budget and Financial Reports such as the Balance Sheet and Profit and Loss Statement. 

In the non-profit world, Pentacle recommends further subdividing your revenue between Earned Revenue and Contributed Revenue. On the expense side, accounts can be divided by business function. (e.g.,  Administrative Expenses, Production Expenses, Technical Expenses, and Operating Expenses)  While the COAs differ from organization to organization, all organizations must still follow the Generally Accepted Accounting Principles (GAAP).

COAs can be very helpful to maintain consistency and clarity with accounting functions and can be used to help inform financial decisions made in the future. An efficient and organized COA is an extremely important tool in your organization’s financial practices.

 

NEXTSTEPS | 1.14.21

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