Chart of Accounts
Chart of Accounts
Understanding Chart of Accounts

All companies should follow a systematic method of assigning and identifying numbers to each account. It is not necessary to use numbers.
Here is a rule of thumb to assign numbers and different types of accounts:

Assets

Assets of a business are properties which are owned by the business. Three types of Asset accounts in:

  1. Current Assets
  2. Fixed Assets
  3. Other Current Assets
Current Assets:

Account number: 1000-1499

Current Assets include such things as cash, bank accounts and amount owed to the business by its customers for goods and services sold to them on credit (called accounts receivable).

Fixed Assets

Account number: 1500-1999

Fixed Assets are items that are held by the business, such as equipments, buildings and land to be sold at a future date.

Liabilities

Account number: 2000-2999

Liabilities of a business are its debts, money borrowed, money where that the business owes money such as amounts owed to creditors for goods and services bought on credit (accounts payable), loans, line of credit and notes payable.

Two types of Liability account:

  1. Current Liabilities
  2. Long Term Liabilities
Current Liabilities

Current Liabilities are money owed for a period of less than a year.

Long Term Liabilities

Long Term Liabilities are money owed for more than a year.

Equity

Account number: 3000-3999

Equity is the interest in the assets of a business that remains after deducting its liability.

Assets – Liabilities = Net Worth or Ownership Equity

Income

Account number: 4000-4999

Income also known as revenues is received in exchange for services provided to customers as part of business, such as commission earned on selling a property.

Expenses

Account number: 5000-6999

Expenses are incurred to run the business such as printing cost, rent, and advertising.

Other Income

Account number: 7000-7999

Other Income is revenue which is related to business but not by selling services, such as bank interest.

Other Expenses

Account number: 8000-8999

Other Expenses are expenses when you incur a loss selling an asset such as furniture or equipment.

A penny for your thoughts! (5 comments so far)


  1. Jo A Pink
    3 years ago

    Thank you. This is very helpful


  2. Betsy Frazier
    2 years ago

    yes as i have metioned the chart of accounts is jacked. No numbers. these numbers i have been working with the last 10 years. Can i assign after i get the account straight. I beleive QB does it for you but these account need to be in the right category first. Correct?


    • Gita Faust
      2 years ago

      Right. You can add account numbers after the fact. It is easy to look at a bill and it is easy to relate to the account name rather than the account number. And when you hand it to someone else, they do not have to memorize the #’s.


  3. KCC
    2 years ago

    Very helpful. Thank you


  4. Deborah Johnson
    1 year ago

    I love your calm, and understandable explanation. Love the Bones in you body being like back bone of business chart of accounts comparison. Thank You!