Definition: The chart of accounts is a list of all accounts in the general ledger used by a company. The accounts are usually listed in financial statement order starting with the balance sheet accounts first. The asset, liability, and equity account are typically shown first followed by the income and expense account.
What Does Chart of Accounts Mean?
The chart of accounts usually only includes the account number and the account name. There is no detailed account description or balances included. The chart of accounts is only a list of the account names and numbers that are currently being used in the accounting system. If the balances were included, it would turn into a trial balance.
Bookkeepers and accountants use the chart of accounts to organize and keep track of the accounts and account numbers in the accounting system. They also use it to add custom accounts when needed.
For example, not all accounting systems like Quickbooks include accounts for other gains and losses. When a company trades in or disposes of a vehicle, it often incurs a gain or loss on the trade or sale. Assume Big Bill’s Construction Co. purchased a work truck for $10,000 in 2005. Today it’s fully depreciated and Bill is ready to buy a new truck. He sells his old truck and gets a $1,500 and purchases a new truck for $25,000.
This $1,500 gain must be recorded in the accounting system as an other gain because it’s not a gain from operations. In this case, Bill’s bookkeeper would pull up the chart of accounts in the accounting system to see if there is an other gains account. If not, one must be added to the chart of account in order to record this business transaction .