All bookkeeping ledger accounts are assigned numbers which are displayed in a general ledger account list called the Chart of Accounts.
Like a table of contents which has a list of topics and the page numbers they are on, the Chart of Accounts has a list of accounts with their corresponding numbers, so you can easily find the account you want when looking through the ledgers...
...also, just as a table of contents can be found in front of a book, the Chart of Accounts can be found at the front of the bookkeeping ledgers.
The Chart of Accounts ties in with the Accounting Equation so the Assets are listed first, then the Liabilities, and finally the Equity (permanent capital) and the Revenue and Expenses (temporary capital).
Here is an example of a Chart of Accounts.
Breaking down the expenses.. Expenses are usually the longest list found in the Chart of Accounts (yes, those pesky items that reduce the profit!), and are generally kept in alphabetical order.
It is best to group similar purchases under one account name to keep the list short and orderly.
If your expenses list is long and cumbersome split the list into different groups with sub-totals to make them more manageable. You could have a group called ‘Administration Expenses’ and another called ‘Operating Expenses’... really, anything that will work and make it easier is acceptable.
Cost of Goods Sold also known as Cost of Sales. You will have noticed this in the example Chart above. Cost of Sales are basically any item, parts or service that a business has specifically purchased in order to fulfil a customer’s order or requirements. The cost part is the actual value of the purchase. (Not to be confused with the price charged to the customer which should be the cost price plus a percentage mark-up.)
The general ledger account list, or Chart of Accounts as it is commonly called, can be as complex or as simple as the business owner/manager wants it to be. The chart is flexible and can be tailored to suit any business, enabling it to separate out information of interest or information that keeps the general ledger accounts in line with government tax department requirements.
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