The Chart of Accounts
The chart of accounts is a listing of all accounts used in the general ledger, usually sorted in order by account number. The accounts are usually numeric, but can also bealphabetic or alphanumeric. The account numbering system is used by the accounting software to aggregate information into an entity's financial statements. Accounts are usually listed in order of theirappearance in the financial statements, starting with the balance sheet and continuing with the income statement. Thus, the chart of accounts begins with cash, proceeds through liabilities andshareholders' equity, and then continues with accounts for revenues and then expenses. Many organizations structure their chart of accounts so that expense information is separately compiled by department;thus, the sales department, engineering department, and accounting department all have the same set of expense accounts.
Three Digit Chart of Accounts
A three digit chart of accounts allows you tocreate a numerical sequence of accounts that contains up to 1,000 potential accounts. It is useful for small businesses that have no pre-defined departments or divisions that must be broken outseparately.
Five Digit Chart of Accounts
A five digit chart of accounts is designed for those organizations with clearly defined departments, each of which is tracked with a separate income statement. Thisformat uses the same account codes for the balance sheet accounts used for three digit account codes, but replicates at least the operating expenses for each department (and sometimes for the revenueaccounts, too.
Seven Digit Chart of Accounts
A seven digit chart of accounts is used by those companies that not only have multiple departments, but also multiple divisions or locations, for each ofwhich the management team wants to record separate accounting information. This requires the same coding structure used for the five-digit system, except that two digits are placed in front of the...
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