How to Create a Chart of Accounts
A chart of accounts is a complete listing of all accounts within an organization's general ledger. The accounts are organized by category and each one has a reference or account number. When a chart of accounts is created, a company must first decide what accounts will be included. After that is determined, the accounts are listed in a logical order. The typical categories are for assets, liabilities, equities, revenues, expenses, other revenues and other expenses.
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Instructions
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Determine what accounts are needed. Small businesses most likely use less accounts than large businesses. When you determine what accounts are required, keep in mind future accounts you may need.
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Divide the accounts into categories. A chart of accounts always begins by listing all of the assets first, and then liabilities, equities, revenues, expenses, other revenues and other expenses.
For example, Supplies and Land are two types of asset accounts. Asset accounts are those that are have monetary value. Common liability accounts are accounts payable and loans payable.
Liability accounts represent amounts a company owes. Equity accounts track owner's rights, expense accounts track expenditures and revenue accounts track money earned.
The last two types of categories represent other sources of revenues and expenses that are not common types.
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Separate the accounts in each category into subcategories. Assets are divided into current assets, fixed assets and other assets. Current assets are assets that are quickly turned to cash in one year or less. Fixed assets, also called long-term assets, are assets that cannot be turned to cash in one year or less and other assets are any that are unusual -- or do not fit in these categories.
Liability accounts are also divided into subcategories which include current liabilities and long-term liabilities. Manufacturing companies also use a cost of goods sold category to track the costs of manufacturing.
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Assign each category a number. Asset accounts are given numbers beginning with 1000. Liabilities use numbers beginning with 2000. Equity accounts begin with 3000. Revenues begin with 4000 and expenses with 5000. Cost of goods sold accounts begin with 6000 and the remaining two categories use 7000 and 8000. These numbers are not set in stone, and often vary from company to company.
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Assign a number to each account. Give every individual account a number, leaving spaces between numbers for accounts that will be added in the future. For example, assign the current asset accounts numbers beginning with 1000. Cash is always the first account listed and it is given the number 1000. Assign 1001 to accounts receivable, 1003 to inventory and 1005 to prepaid insurance.
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References
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