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CoA (Chart of Accounts): Definition, Benefits & Types

CoA (Chart of Accounts): Definition, Benefits & Types

Financial statement preparation often faces difficulties in recording transactions because recording transactions are conducted in a complex manner. The financial statement can lead to a protracted problem if you fail to fix the existing issues. This problem requires all business owners to start using the Chart of Accounts (CoA) process. What is the chart of accounts (CoA)?

A chart of accounts is a list of accounts in a business that allows for more concise and convenient accounting. In addition, a chart of accounts saves time because each account has a code that distinguishes it from other accounts based on your financial needs. In addition to its close relationship with accounting, it can also be supported by a document management system.


Chart of Accounts (COA)

A chart of accounts (CoA) is a list of systematic sets of codes for organizing a particular structure. The CoA contains the account code and account name elements.

A business can create or modify its own chart of accounts using a chart of accounts. Usually, an account plan will include a number symbol to show the difference between account types.

Also, the chart of accounts is often used to display financial statements, such as balance sheets and income statements. Then, other accounts, such as equity or principal, debt, liabilities, and other expenses, can be added to the charts.


Benefits of Chart of Account (COA)

Here are the benefits of creating a chart of accounts:

  • Able to assist in the preparation of reports

  • Facilitates recording various results or data obtained by the company, and the process will be more controlled.

  • It helps improve various data or other records that have changed due to user errors or additional transactions that have taken place.

  • Make reports easier to read so that stakeholders can make correct and timely decisions.

  • Many records or data will be easier to manage, compare and analyze and can therefore be used by decision-makers.

With its close relationship to decision-making, your business can also support decision-making by using an ERP system that automates many aspects of your business.


Types of chart of accounts (COA)

The CoA is a series of codes made up of numbers and letters. It can also be based on a systematic and easy-to-understand combination of numbers and letters for stakeholders. Account names and codes are used to group, record, control, and report financial transactions within an enterprise.

There are three account types: numeric account codes, alphabetic account codes, and alphabetic and numeric codes. See the illustration of each type of CoA, including:


Numeric (Numbers)

Numbers are the most frequent symbols used to create account codes in the chart of accounts.

Example:

  • 001: Big Cash

  • 002: Small Cash 

  • 003: Receivables

 Alphabet (Letters)

Financial statements rarely use letter symbols when creating a chart of accounts or account codes. Letters are generally used more often to indicate company name, buyer or customer name, bank name, supplier name, and region name.

Even so, you can still use letters when creating CoA.

Example:

  • HC: Huge Cash

  • LC: Little Cash

  • TR: Trade Receivables

The mix of numbers and letters

If letter symbols have been used for prefix names, vendor names, company names, bank names, or customer names, the code still requires that the additional division be clear and easy to understand for all parties involved; a mixed letter symbol and numbers may be beneficial to use.

Example:

  • Cash 01: General Ledger Cash

  • CASH 02: Special Large Cash

  • ARP 01: Accounts Receivable Paid

  • ARA 02: Account Receivable in Arrears

Classification of Accounts

Understand some of the account code classifications in General Ledger (Chart of Account/CoA) below:

Balance Sheet Account

  • Asset

  • Liabilities 

  • Stockholders Equity

Profit and Loss Account

  • Cost of Fund

  • Operating Expenses

  • Other income and Charges

  • Revenue/Sales


Conclusion

Once you understand the CoA, you can distinguish between each account in a company's balance sheet. The preparation of the CoA will have a significant impact on the financial statements.

For more accurate decision-making, the description of the benefits you can get, such as ease of management and comparison between accounts. In addition, external parties who read the company's financial statements will more easily understand the report's content.

If preparing financial statements is time-consuming and time-consuming, you can employ the services of an accountant. Using a professional will make it easier to produce accurate financial reports and view actual conditions.

CoA makes cash flow management to financial reporting, bank reconciliation, adjustment journals, invoices, and more, making financial reporting easier and more automated.


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