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Simple English definitions for legal terms
chart of accounts
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A quick definition of chart of accounts:
A chart of accounts is a list of all the financial accounts a business uses to keep track of its money. It helps the company find any financial transaction it has made. The chart includes different types of accounts like revenue, expenses, assets, liabilities, and equity. Each account has a name, description, and code. The chart must follow certain rules called GAAP. For example, the assets account may include cash, accounts receivable, inventory assets, vehicles, and real estate. The liabilities account may list items like the company’s credit lines, accounts payable, and payroll liabilities. The equity account may list items such as common stock, preferred stock, and retained earnings.
A more thorough explanation:
A chart of accounts (COA) is a list of all the financial accounts used by a business. It helps the company keep track of all its financial transactions. The COA is like a map that shows where all the money is coming from and going to.
COAs are different for every company, but they all follow the same rules. They have to follow the generally accepted accounting principles (GAAP). This means that they have to be accurate and consistent.
Here are some examples of accounts that might be on a COA:
- Assets: This includes things like cash, accounts receivable, inventory, vehicles, and real estate. These are things that the company owns and can use to make money.
- Liabilities: This includes things like credit lines, accounts payable, and payroll liabilities. These are things that the company owes to other people or businesses.
- Equity: This includes things like common stock, preferred stock, and retained earnings. These are things that show how much of the company belongs to the owners.
These examples show how a COA can help a company keep track of its money. By organizing all the accounts into categories, it's easier to see where the money is coming from and going to. This can help the company make better financial decisions.