What Is a Chart of Accounts?
Question: What is a chart of accounts and how is that different from items that I order?
Answer: A chart of accounts is a list of financial accounts set up in a company to record financial transactions.
Accounts fall into these six general categories:
- ASSETS (what you own, such as cash)
- LIABILITIES (what you owe, such as credit card debt)
- EQUITY (Assets-liabilities, or the part of the company that’s truly yours after debts are paid)
- COST OF GOODS SOLD (in our industry, product costs)
- EXPENSES (general operating expenses, such as telephone expenses)
When your financial transactions are recorded into your accounting system, they are assigned or recorded into the appropriate categories. For example, paying your telephone bill would reduce your checking account and also be recorded into your telephone expense account.
When all the transactions for the year are recorded and reconciled, you can produce the financial statements necessary to provide your accountant to complete your taxes.
Items are different from accounts in your chart of accounts. Items are what you sell, such as BIC Clic Stics. When you sell an item, its financial details are allocated to the appropriate accounts in your chart of accounts.
Please email accounting questions you would like considered for the column to HGatter@AccountingSupportLLC.com with the subject line of "Ask the Accountant."
Harriet Gatter, owner of Accounting Support LLC, was an ad specialty distributor for 23 years and an adjunct professor of accounting at Neumann University. She sold her ad specialty business in 2012, became certified as a QuickBooks ProAdvisor, and now works exclusively with ad specialty distributors nationwide on their QuickBooks, order management and accounting needs.