What is a chart of accounts?
Chart of accounts definition:
A chart of accounts (COA) is the foundation of every accounting system. It is a structured list of all accounts used in the general ledger to record financial transactions.
What is the purpose of a chart of accounts?
Each transaction is assigned to an account code so that the process of recording and reporting financial data remains accurate and consistent.
A well-designed chart of accounts can also grow with the business, accommodating new products, departments and regions without losing its structure.
The result? Faster month-end closes, more accurate and efficient reporting, smoother audits, sharper forecasts and more confident decision-making.
What are examples of chart of accounts codes?
Most charts of accounts are grouped into five main categories:
- Assets: cash, receivables, equipment
- Liabilities: loans, payables, taxes
- Equity: capital, retained earnings, dividends
- Revenue: sales, service income, interest
- Expenses: salaries, rent, utilities
These five core categories are broken down into subcategories to provide greater detail. Each subcategory is assigned a unique code in the general ledger.
For example, Assets might be split into:
- Current Assets:
- 1000 = Cash
- 1100 = Accounts Receivable
- 1200 = Inventory
- Fixed Assets:
- 1500 = Buildings
- 1600 = Vehicles
- 1700 = Equipment
This coding system allows for high-level visibility and reporting, as well as detailed analysis of financial data, e.g. tracking spend on vehicles vs equipment.
How does a group chart of accounts work?
For a single entity, the chart of accounts is a simple structure that classifies its transactions. However, when businesses expand into multi-entity groups, the group chart of accounts can quickly spiral into chaos.
- Different entities often develop their own category names and numbering systems.
- This can lead to inconsistencies and unreliable reporting across the group, and significant time and effort is required to deliver a clear picture.
- As a result, consolidations become messy, compliance becomes harder to maintain, and manual reconciliations pile up at month end.
To regain order, many groups establish a master chart of accounts using spreadsheets, positioning one chosen entity’s account codes as a definitive source of truth. Local entities then map their individual accounts to this master set of codes to ensure consistency, comparability and regulatory compliance.
How can you maintain control over a group chart of accounts?
Creating a master chart of accounts is only the first step. Keeping it consistent across multiple entities is where the real difficulty lies, particularly if you are doing so manually using spreadsheets.
In reality, manual management means that entities often struggle to adhere to following their master spreadsheet. This can be due to typos, misclassifications, human error under pressure, onboarding pains and oversights.
That’s why many modern finance teams are turning to chart of accounts automation to reduce manual effort and ensure that the COA remains a reliable source of truth, regardless of scale.
Coming up - In our next blog, we’ll explore chart of accounts automation and how solutions like Mayday HQ keep entities in sync and allow finance teams to focus on analysis instead of admin.
