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Chart of Accounts


24 Minute Accounting

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Unit Video

Unit Summary

The Chart of Accounts is segregated into the following account groupings:
  • Current Assets (CA)
  • Non-current Assets (NCA)
  • Current Liabilities (CL)
  • Non-current Liabilities (NCL)
  • Equity
  • Revenue
  • Cost of Sales (Goods Sold)
  • Expenses

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Hi, in this video you will learn what a Chart of Accounts is and why it is important in setting up the chart correctly from day 1.
The chart of accounts is a listing of all account ledgers used in the general ledger of an organization. These accounts come from two places; the Balance Sheet and from the Profit and Loss Statement.
The chart is used by the accounting software to aggregate information into an entity's financial statements. The chart is sorted in order by account number, whereby certain accounts are grouped under a specific heading, thus easing the task of locating specific accounts.
The Chart of Accounts is segregated into the following account groupings:
  1. Current Assets (CA) – Includes all accounts that account for what the company owns and are expected to be converted into cash within in the next 12 months. Such accounts like cash in banks, petty cash, accounts receivable (money collected from customers), and inventory are included under CA’s.
  1. Non-current Assets (NCA) – all assets that are owned by the organization that help to generate revenue and have a lifespan of more than 12 months, such as buildings, furniture, and equipment are included under NCA’s.
  1. Current Liabilities (CL) – All accounts that represent debts (or obligations) that the organization must pay over the next 12 months, such as accounts payable (bills from suppliers, contractors, and consultants, etc), interest on loans payable, etc are included under CL’s
  1. Non-current Liabilities (NCL) – all liabilities that need to be paid by the organization in more than 12 months, such as bank loans, bonds payable etc included under NCL’s.
  1. Equity – Includes all accounts that track the owners of the company and their claims against the company’s assets. These include any capital (cash or other assets) invested in the company, any money withdrawn out of the company, as well as any profits that have been reinvested in the company.
  1. Revenue – Includes all accounts that record the sales of goods and services of the organization, as well as any other revenue that is generated by the company by other means, like the sale of fixed assets.
  1. Cost of Sales (Goods Sold) – trading companies will use a Cost of Goods Sold heading (and account). All accounts that track the direct costs involved in selling the company’s goods or services are included under this heading.
  1. Expenses – This group includes all accounts that track expenses that relate to running the business which aren’t directly tied to the sale of individual products or services. These accounts are also referred to as Overhead Accounts.
It is the responsibility of the Chief Accountant to draw up the Chart of accounts that his organization will follow.
With proper segregation of the accounts, members of the accounting department will be able to easily account for transactions in a logical manner that will help generate proper and clearer accounting reports.

Accounting is like a puzzle: Putting together all the pieces to form the whole picture of where you have been and where you can go. Mary B. Riley