Description
A chart of accounts is a comprehensive list or an index of financial accounts included in a company's general ledger. It provides a bird's eye view of a company's business areas that spend or make money. The primary account categories included are revenues, expenses, assets, liabilities, and equity.
Example
For a small business, COAs could include some of these sub-accounts within the head 'assets':a. Cashb. Savings accountc. Accounts receivabled. Inventory assetse. Prepaid insurance
Why it matters
A chart of accounts lays out all the accounts for a business and its various financial components like a map. It tries to separate out all the company’s key accounts, making it easy to determine which transactions were recorded in each account.This could help a company make better financial decisions by giving an accurate snapshot of the company’s financial health.