Knowing Your Chart of Accounts
Bookkeeping, the process of recording, journalizing, and interpreting financial transactions, involves a great deal of analysis and comprehension in able to present the financial data accurately. In order to achieve efficiency in gathering the financial information, a bookkeeper must be well-familiar with their chart of accounts.
The chart of accounts provides the users a complete and organized list of accounts that are used in the accounting system. It generally complies with the International Accounting Standards (IAS) and the list may use letters, numbers, or both as account identifiers.The design of the chart varies on the company’s preferences or the countries accounting regulations, though all follows the standard account classification under IAS.
Listed below are the six (6) types of accounts as implemented by IAS:
- Assets – Assets are the resources that are owned or controlled by a business entity resulting from a past transaction and may provide economic benefits in the future.
- Liabilities - These are the present obligations from past events which will result to the outflow of resources from the entity.
- Equity – also known as the “capital”, equity is the company’s interest after liabilities are deducted from the asset.
- Revenue or Income-the account used to represent the generated earnings of the company which may be attained through sales and services, to name a few.
- Expenses- this refers to the expenditures of the company during its course of operation.
- Contra-assets- defined as the negative balances that offsets other accounts in the balance sheet. Most commonly used contra-assets are the accumulated depreciation and allowance for bad debts which are deducted from depreciation and accounts receivable respectively.
Having a deeper understanding of the company’s chart of accounts can help its users to better comprehend the company’s financial activities, thus leading them to create a sound, economic decision.
Need a reliable bookkeeper to keep your business on track? Contact us today.