What is a Chart of Accounts?
A Chart of Accounts is a listing that highlights your organization’s different classes of accounts such as assets, liabilities, expenses, revenue and equity accounts. In each of these classes, transactions and adjustments are recorded and tracked.
As a result, the Chart of Accounts form the underlying basis of producing financial statements. Financial statements measure organizational performance and is critical document that outlines financial well being.
So, what is an asset? An asset is cash on hand. A liability is debt. An expense is the money you pay your employees each month. Revenue is the money coming from sales. Equity accounts are shares issued, either common or private.
Why do we use a Chart of Accounts?
As we mentioned above, we use a Chart of Accounts to outline the financial well-being of an organization. By seeing the state of the different accounts (i.e how much cash you have versus how much debt you are carrying) you gain a more holistic view of your company’s finances. You want to balance your assets and revenue against your expenses and liabilities because you will gain a window into where you can make improvements, if need be.