Chart Of Accounts
The Chart of Accounts is the blueprint of the accounts in your organization.
The overall structure of your Chart of Accounts is based on a system of double entry accounting that has become a standard all over the world to quantify how a company is doing financially.
Chart of Accounts is a tree view of the names of the Accounts (Ledgers and Groups) that a Company requires to manage its books of accounts. ABNERP sets up a simple chart of accounts for each Company you create, but you can modify it according to your needs and legal requirements.
For each company, Chart of Accounts signifies the way to classify the accounting entries, mostly based on statutory (tax, compliance to government regulations) requirements.
The Chart of Accounts helps you to answer questions like:
- What is your organization worth?
- How much debt have you taken?
- How much profit are you making (and hence paying tax)?
- How much are you selling?
- What is your expense break-up?
As someone managing a business, it is very valuable to see how well your business is doing.
\u003e Tip: If you can\u2019t read a Balance Sheet it's a good opportunity to start learning about this. It will be worth the effort. You can also take the help of your accountant to set up your Chart of Accounts.
To access the Chart of Accounts, go to:
\u003e Home \u003e Accounting \u003e Accounting Masters \u003e Chart of Accounts
- How to Create/Edit Accounts
ABNERP comes with a standard set Chart of Accounts. Instead of creating/modifying, you can also use the Chart of Accounts Importer tool. Note that the existing Chart of Accounts will be overwritten when this tool is used.
- Go to the Chart of Accounts
Here you can open group accounts which contain other accounts. There are options to \u201cAdd Child\u201d in an account, Edit or Delete the account.
- The option to create a child account will only appear if you click on a Group (folder) type Account.
- Enter a name for the account.
- Enter a number for the account.
- Tick 'Is Group' if you want this to be a group account which can contain other accounts.
- Select the Account Type. Selecting this is important as some fields allow selecting only specific type of accounts.
- Change the currency if this account will be used for transactions with different currency. By default, it's the Company's currency. To know more, visit the Multi Currency Accounting page.
- Click on Create New.
Typically, you might want to create Accounts for:
- Travel, salaries, telephone, etc. under Expenses.
- Value Added Tax (VAT), Sales Tax, Equity, etc. under Current Liabilities.
- Product Sales, Service Sales, etc. under Income.
- Building, machinery, furniture, etc. under Fixed Assets.
\u003e Tip: Accounts with different currencies are created when you receive or make payments to or from different currencies. For example if you are based in India and transact with USA, you may need to create accounts like 'Debtors US', 'Creditors US', etc.
Let us understand the main groups of the Chart of Accounts.
- Account Types
Account types are mainly classified as income, expense, asset, or liability.
2.1 Balance Sheet Accounts
Balance Sheet accounts are 'Application of Funds (Assets)' and 'Sources of Funds (Liabilities)' that signifies the net-worth of your company at any given time. When you begin or end a financial period, all the Assets are equal to the Liabilities.
\u003e A note on Accounting: If you are new to accounting, you might be wondering, how can Assets be equal to Liabilities? That would mean the company has nothing of its own. That's correct! All the \u201cinvestments\u201d made in the company to buy assets (like land, furniture, machines) is made by the owners. The owners are a liability to the company since the profits belong to the owners.
\u003e If a company were to shut down, it would need to sell all the assets and pay back all the liabilities (including profits) to the owners, leaving itself with nothing.
All the accounts under Balance Sheet accounts represent an asset owned by the company like \