A chart of accounts allows you to organize the different accounts that make up an accounting system.
The chart of accounts is a list that presents the accounts necessary to record the accounting facts . It is a systematic arrangement of all the accounts that are part of an accounting system .
To facilitate the recognition of each of the accounts, the chart of accounts is usually codified . This process involves assigning a symbol, which can be a number, a letter, or a combination of both, to each account.
How to establish a chart of accounts
The most common mnemonic system to encode a chart of accounts is the decimal numerical system , which allows unlimited groupings and facilitates the task of adding and interspersing new accounts. For example: 1 Asset, 1.1 Current asset, 1.2 Non-current asset, 1.1.1 Cash and banks, 1.1.2 Current investments.
Generally, the chart of accounts is complemented by an accounts manual , which presents the necessary instructions for the use of the accounts that are part of the accounting system .
The chart of accounts, in short, provides a basic structure for the organization of the accounting system, which is why it appears as a means to obtain information in a simple way. A chart of accounts must meet several requirements, such as homogeneity, completeness (it must present all the necessary accounts), systematicity (it must follow a certain order) and flexibility (it must allow the addition of new accounts).
On the other hand, it is important that, when preparing a plan of accounts, clear terminology is used to designate each account and starting from the general to the particular.
By systematizing information, a plan of accounts helps control expenses and income.
Purposes and procedures
Among the purposes of a chart of accounts we can mention:
* The contribution to the fulfillment of the objectives set by accounting.
* The capture of all the information regarding the objectives.
* Facilitation of control of all income and expenses.
* The provision of accounting records that facilitate imputation.
To correctly create a plan of accounts, the data must be systematized in an orderly manner , with such flexibility that it allows us to add new accounts in the future; Furthermore, it must be done with sufficient clarity to allow other users to understand what has been reflected in them.
It should be taken into account that the fundamental purpose pursued in this type of document is to facilitate the reading of the characteristics of each account. In addition, many systems come equipped with a skeleton that allows them to organize the different data and group them , taking into account the coding that distinguishes each of them.
Terms associated with the concept of chart of accounts
There are some concepts whose understanding may be extremely necessary to understand the way in which account plans are developed .
Availability: These refer to the existence of money, such as checks, bank deposits and everything that may have the particularity of being true, cash or liquid.
Credits : These are those rights that the company has over third parties and that allow it to receive certain sums of money, particular services or goods. It must be remembered that those credits that come from services carried out on certain activities of the company must be presented in a particular way, separate from the rest of the operations and must be presented separately, common debtors and documented debtors.
Exchange goods : These refer to those goods that are obtained from the sale or marketing of goods produced by the company itself.
Fixed Assets : This classification includes all those elements that are used to carry out the main activity of the company; They must have a useful life of more than one year and must not be intended for sale. Fixed assets are real estate, vehicles and furniture that are involved in the production process .
Intangibles : These are those assets that are representative of the company and that can provide some type of privilege with the potential to generate profits in the future. This classification includes patents, key value, brand, etc.