7 Steps to Structure a World-class Chart of Accounts

Once designed and implemented, a change in CoA structure might deliver benefits comparable to a complete reimplementation of the ERP application. Capturing data, financial and management reporting needs, and consolidation necessitates the right CoA design to get full value out of an ERP implementation. In cases of reimplementation or data migration from legacy systems, the CoA design also needs to consider the level of detail at which data will be made available from its source systems. Wherever you are on the journey, optimizing your CoA is key to realizing the full value of ERP implementation. Explore the fundamentals of an optimal CoA and see our guiding principles for designing a chart of accounts that can set your business up for long-term success. Owners’ Equity—Your business investments which will vary by company structure. It could include common stock, preferred stock, and treasury stock , and retained earnings.

• This keeps you from creating too many specific accounts and spares you from a painful cleanup process at the end of the year.
• You can then select any heading/subheading to move these accounts instantly.
• These are divided on a positive/negative scale- assets include bank accounts, real estate, prepaid expenses, and accounts receivables.
• Over the years, accounting managers have developed a handful of practices that serve most companies well in developing their first charts of accounts.
• Even private companies will have shareholder equity accounts like this if they offer stock options to employees.

Or you’ll spend too much time reconstructing old accounts, which can lead to mistakes and inaccurate data. This keeps you from creating too many specific accounts and spares you from a painful cleanup process at the end of the year. The general ledger—and by extension, CoA—tells What Is a Chart of Accounts (COA)? you where to record each transaction and makes lookup and access easy. In order to understand the different types of knowledge management systems, organizations should know about the different types … COGS is the total cost involved in the production and delivery of a product.

The Cash Flow Statement

It helps you to disaggregate and understand the composition of your revenue as well as the balance between revenue and specific categories of expenses. In other words, it’s a tool that allows you to measure the value-added you are gaining from your business activities. While they might seem like some arcane accounting convention, the structure embedded in a COA helps you interpret your financial statements. Making it intuitive helps you glean the maximum amount of financial information from your statements in the most efficient way possible. Detailed chart of accounts categories are individual to the business and set by management. An account in bookkeeping is a record of financial transactions of a certain type (e.g., credit sales to the ABC Corp).

Your COA helps you track and report each class of data for which you spend or receive funds. It should align with your business’ financial structure and provide the level of detail you need in your financial statements. The COA is a listing of all existing accounts including a description of the specific use of the account. The GL contains the financial records of the organization, including the COA, and maintains the debit/credit balance information.

categorize asset and liability

This is followed by the income statement, which includes revenue and expense accounts. This can be further divided into operating expenses, operating revenues, nonoperating expenses and nonoperating revenues. Within the accounts of the income statement, revenues and expenses could be broken into operating revenues, operating expenses, non-operating revenues, and non-operating losses. In addition, the operating revenues and operating expenses accounts might be further organized by business function and/or by company divisions.

A standard chart of accounts makes it easy for anybody to come into a business and quickly understand your finances. The general ledger https://business-accounting.net/ is the greater record keeper for a company’s financial accounts, with a trial balance validated debit and credit account records.