The chart of accounts is a listing of all of the accounts a company uses in its accounting system.
There are five types of accounts: assets accounts, liability accounts, equity accounts, income accounts, and expense accounts. Every account within the chart of accounts is one of these account types.
The chart of accounts is used in the preparation of the financial statements as it lists the accounts needed for financial reporting. Many accounts can be aggregated for financial reporting purposes.
Accounts are usually issued a number which allows for easier identification. The account numbers are usually based on the account type. For example, assets accounts may be issued numbers between 1 and 100, while liability accounts may be issued numbers between 101 and 200. The range of numbers for each account type must be wide enough to allow for the creation of new accounts.
The accounts within the chart are usually listed to correspond to their appearance in the financial statements. For example, current asset accounts will be listed within the chart of accounts before long-term assets. Likewise, current liabilities will be listed before long-term liabilities.
Accounting software usually contains a default list of accounts, which firms can adjust as needed.
The chart of accounts will look different for different businesses. For example, the chart of accounts for a homebuilder will contain different accounts than the chart of accounts for a retailer.
