Definition

chart of accounts (COA)

A chart of accounts (COA) is a financial organizational tool that provides a complete listing of every account in an accounting system. An account is a unique record for each type of asset, liability, equity, revenue and expense.

A COA, which lists the names of the accounts that a company has identified and made available for recording transactions in its general ledger, establishes the level of detail tracked in a record-keeping system. Typically, a COA contains the accounts’ names, brief descriptions and identification codes.

In practice, the COA serves as the foundation for a company’s financial record keeping system. It provides a logical structure that facilitates the addition of new accounts and deletion of old accounts.

Within the COA, accounts will be typically listed in order of their appearance in the financial statements. Typically, Balance sheet accounts are listed first followed by the income statement accounts.

Balance sheet accounts

Assets
 

Liabilities
 

Owner's (Stockholders') Equity
 

Income statement accounts

Operating Revenues
 

Operating Expenses
 

Non-operating Revenues and Gains
 

Non-operating Expenses and Losses
 

An important purpose of a COA is to segregate expenditures, revenue, assets and liabilities so that viewers can quickly get a sense of a company’s financial health. A well-designed COA not only meets the information needs of management, it also helps a business to comply with financial reporting standards. A company has the flexibility to tailor its chart of accounts to best suit its needs. Within the categories of operating revenues and operating expenses, for instance, accounts might be further organized by business function and/or by company divisions.

A chart of accounts will likely be as large and as complex as the company itself. An international corporation with several divisions may need thousands of accounts, whereas a small local retailer may need as few as one hundred accounts.

Contributor: Harold Averkamp MBA, CPA

This was last updated in March 2012

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Hi Margaret, thanks for this post. Are there any restrictions on setting up the chart of accounts for US GAAP or IFRS? Specifically within operating expenses, does it matter where recruiting costs fall under marketing (for example if it was related specifically to recruiting for marketing).
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