What is a Chart of Accounts?
When talking to your accountant at Lance CPA Group you may hear them refer to the Chart of Accounts from time to time. The Chart of Accounts is the backbone of accounting. It is principally the same for all companies and it helps to tell the story of your company financially. There are five major accounts in two groupings that make up the chart of accounts. Assets, Liabilities and Equity can all be found on the Balance Sheet. Revenue and Expenses are found on the Income Statement.
Below are some examples of each account:
Assets are resources owned by the company that have future economic value. These include cash, accounts receivable, undeposited funds, prepaid insurance, furniture, equipment, vehicles and buildings.
Liabilities are what you owe other parties. These include accounts payable, loans to other individuals or companies, company credit cards and payroll liabilities.
Equity is ownership in the company. It is the value of the company’s Assets minus Liabilities. These include stock/contributions that the owner(s) have in the company plus any retained earnings (profits/losses from past and current years) less any dividends paid to shareholders.
Revenue is the amount of money a company receives during a given period less any discounts, usually from the sale of goods or services to customers.
Expenses are the cost of doing business. These include cost of goods sold, advertising, payroll, rent, health insurance, recruitment, legal and professional fees, taxes etc. There are typically more categories of expenses than revenues in an Income Statement.
I hope this gives some insight into the work we do to produce your monthly management reports and how we classify items. If you’d like to work with us contact us today!