Chart of accounts

A chart of accounts (COA) is a created list of the accounts used by an organization to define each class of items for which money or the equivalent is spent or received. It is used to organize the finances of the entity and to segregate expenditures, revenue, assets and liabilities in order to give interested parties a better understanding of the financial health of the entity.

Accounts are typically defined by an identifier (account number) and a caption or header and are coded by account type. In computerized accounting systems with computable quantity accounting, the accounts can have a quantity measure definition.

The charts of accounts can be picked from a standard chart of accounts, like the BAS in Sweden. In some countries, charts of accounts are defined by the accountant from a standard general layouts or as regulated by law. However, in most countries it is entirely up to each accountant to design the chart of accounts.

The list can use numerical, alphabetic, or alpha-numeric identifiers. However, in many computerized environments like the SIE format, only numerical identifiers are allowed. The structure and headings of accounts should assist in consistent posting of transactions. Each nominal ledger account is unique, which allows its ledger to be located. The list is typically arranged in the order of the customary appearance of accounts in the financial statements: balance sheet accounts followed by profit and loss accounts.

Each account in the chart of accounts is typically assigned a name and a unique number by which it can be identified. Software for some small businesses, such as QuickBooks, may not require account numbers. Account numbers are often five or more digits in length with each digit representing a division of the company, the department, the type of account, etc.

The first digit might signify the type of account (asset, liability, etc.). For example, if the first digit is a "1," it is an asset. If the first digit is a "6," it is an operating expense.

A gap between account numbers allows for adding accounts in the future.

Most countries have no national standard charts of accounts, public or privately organized. In many countries, there are general guidelines, and in France the guidelines have been codified in law. The European Commission has spent a great deal of effort on administrative tax harmonisation, and this harmonization is the main focus of the latest version of the EU VAT directive, which aims to achieve better harmonization and support electronic trade documents, such as electronic invoices used in cross border trade, especially within the European Union Value Added Tax Area. However, there is still a great deal to be done to realize a standard chart of accounts and international accounting information interchange structure.

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