Chart of accounts is an index of all the accounts where the company files away its financial information. The chart of accounts is a listing of all the company’s account names and numbers where it records its financial transactions.
An Account is a separate record for each type of asset, liability, equity, revenue, and expense used to show the beginning balance and to record the increases and decreases using debits and credits for a period of time and the resulting ending balance at the end of the period. All the Individual Accounts make up or become a part of the Chart Of Accounts.
Major types of accounts are:
Formal Definition: The properties used in the operation or investment activities of a business.
Informal Definition: All the good stuff a business has (anything with value). The goodies.
Includes: Cash, Receivables, Investments, Buildings, Land, Equipment, Vehicles, etc.
Formal Definition: Claims by creditors to the property (assets) of a business until they are paid.
Informal Definition: Other’s claims to the business’s stuff. Amounts the business owes to others.
Includes: Payables, Notes, Loans, Mortgages, etc.
Formal Definition: The owner’s rights or claims to the property (assets) of the business.
Informal Definition: What the business owes the owner(s). The good stuff left for the owner(s) assuming all liabilities (amounts owed) have been paid.
Includes: Owner’s Capital Invested and the Accumulated Profits or Losses for the business since it began.
Formal Definition: The gross increase in owner’s equity resulting from the operations and other activities of the business.
Informal Definition: Amounts a business earns by selling services and products and investing. Amounts billed to customers for services and/or products.
Sales of Goods and Services – revenue directly related to daily operations.
Other Income – revenue not directly related to daily operations such as Interest and Dividends.
Formal Definition: Decrease in owner’s equity resulting from the cost of goods, fixed assets, and services and supplies consumed in the operations of a business.
Informal Definition: The costs of doing business. The stuff we used and had to pay for or charge to run our business.
Cost of Goods Sold – the cost of the products being sold by the business.
Operating Expenses – the expenses related to daily operations such as rent, advertising, insurance, etc.
Other Expenses – the expenses not directly related to daily operations such as Interest and Financing.