What is a the Chart of Accounts?

Definition: The financial organization of a company. The chart of accounts is a list of the account codes that form the structure for the nominal or general ledger.

The Chart of Accounts (or COA) is a record of all of the accounts or nominal codes (as they are named in the nominal or general ledger). They are summarized in an appropriate manner to signify the order on the financial statements.

The accounts or nominal codes on the chart of accounts are often divided into five different groups:

  • assets
  • liabilities
  • owners/shareholders equity
  • revenue
  • expenses

This way, when they are reported they can be grouped together and will be easily identifiable.

For example: each asset nominal codes is prefixed with the number 1, all liabilities nominal codes are prefixed with the number 2, and so on.

Debits and credits

Every transaction that is put into an accounting program must have a nominal code attached to it in order for it to be traceable. Also, for each transaction that is debited to a nominal code, a subsequential credit will also be posted to another nominal code.

This creates the double entry system wherein each entry is stored two times- one time as a debit and one time as a credit.

When running your trial balance (a report that shows you the balance against all nominal codes with your chart of accounts) you will see that the debits are equal to the credits.