A Chart of Accounts (COA) is a structured list of all account categories used by a business to record its financial transactions. It helps organize financial data into key groups such as assets, liabilities, income, and expenses. Each account represents a specific type of transaction or financial element. The COA forms the foundation of the accounting system and supports accurate financial reporting.
Key Characteristics
- Systematic Classification: Organizes transactions into clearly defined categories.
- Ease of Reporting: Simplifies the preparation of profit & loss and balance sheet.
- Business Customization: Tailored to suit the nature and size of the business.
- Clarity and Control: Helps track and monitor each financial component separately.
- Essential for preparing reports like P&L, Balance Sheet, Trial Balance
Example (Basic COA Structure):
- Assets: Cash, Bank, Debtors, Inventory
- Liabilities: Creditors, Loans, Taxes Payable
- Income: Sales, Interest Received
- Expenses: Rent, Wages, Electricity