Chart of Accounts
The Chart of Accounts is a list of all the accounts a company uses in its accounting system. Five categories of are generally used in the chart of accounts:
- Owner’s Equity
These categories are then broken down into accounts into which the financial transactions are recorded. Many of these account names are commonly used across most types of companies (i.e. cash) and some accounts are more specialized (i.e. rental income). In most accounting software, the account names can be customized based on the needs of your company and industry.
The accounts available in your chart of accounts will be used to record and classify all of your business financial transactions. These account totals are then aggregated together and reported as the line items on your financial statements, such as the Income Statement and Balance Sheet.
Below are some examples of accounts used in each of the five categories in the chart of accounts.
|Cash||The balance in the company bank accounts.|
|Inventory||The value of raw materials and goods available for sale.|
|Equipment||The cost of fixed assets used by the business such as vehicles, machinery, computers, etc.|
|Accounts Payable||The amount due to vendors for supplies and inventory.|
|Notes Payable||Amounts due to lenders under written lending agreements.|
|Payroll Tax Payable||Payroll taxes that have accrued in the current period but not yet remitted to the IRS.|
|Capital Stock||The amount of ownership issued for investments made into the company.|
|Shareholder Distributions||Amount of distributions of money or property made to shareholders.|
|Retained Earnings||Accumulated profits not distributed to shareholders.|
|Services Income||Income for services rendered, usually for skilled labor.|
|Product Income||Income from physical products sold.|
|Rental Income||Income from the rental of property or equipment.|
|Cost of Goods Sold||The cost of materials and labor to produce a product.|
|Advertising||The costs for advertising such as online ads and flyers.|
|Supplies||The costs for items needed to run the business such as shop rags, printer paper, paper cups, etc.|