Chart of Accounts is a listing of Account Names and Account Numbers that will comprise the general ledger accounts of the company. This is the list of all the assets, liabilities, equity, income and expense accounts that a business uses.
Here is a basic example of Chart of Accounts. In this example, assets are assigned with account numbers 1000-1999, Liabilities 2000-2999, Equity 3000-3999, Revenue 4000-4999, and Expenses 5000-5999. Using account numbers can be helpful in organizing your chart of accounts.
Asset, Liability or Equity Accounts (Balance Sheet accounts) are called real accounts while Income or Expense Accounts (Income Statement Accounts) are nominal or temporary accounts.
We call them nominal or temporary accounts because at the end of the business year; this Net Profit or Net Loss, will be added to the equity balance. Nominal accounts will then close its balance to a Real account – the Equity.
The company prepares its own chart of accounts; the complexity or simplicity of chart of accounts can depend on the scale and type of business operations. A large company might want to identify and monitor expenses by department such as Administration, Recruitment, HR, Accounting, Payroll, IT. They could add specific cost centers to GL account numbers.
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