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Description & Function of The Chart of Accounts

Updated: Jun 10

Every business, small or large, uses a unique Chart of Accounts to organize and manage their financial books. The Chart of Accounts, often called the Chart, or COA, is the list of all financial accounts in your organization. Accounts are used to categorize the business's expenses, revenue, assets, liabilities, and equity.

For example, you probably have some expenses for your business. Perhaps you drive to meet clients, spending money on fuel each time. In order to track this in your financial record, there would be an account called "Fuel" or "Travel" in your Chart of Accounts. When a new fuel transaction occurs, your bookkeeper matches the transaction to the appropriate account in your Chart.

The Chart helps us organize and categorize the businesses transactions for multiple purposes, including financial status evaluation, tax preparation, budgeting, and forecasting expenses or revenue. Reports are created to show the value of specific accounts, giving a clear picture of the businesses operations. One commonly-used report is the Profit & Loss report, which supplies a look at the net cashflow of the business. It includes the various sales transactions and other income types, as well as expense transactions, providing the overall net positive or negative cashflow of the business over a given period of time.

Overall, the Chart is a highly useful tool in managing the finances of professional contractors and businesses alike. Creating the initial Chart involves assessing the common expenses, the equity held, and liabilities of the business, and forming the list of accounts which will be used to categorize future transactions. After the initial set-up, creation of new accounts in the Chart should be considered carefully, as most account types will appear on the financial reports. An excess of accounts on the Chart causes difficulty in drawing accurate conclusions from financial reports.

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Sonder Accounting was founded in 2016 by Kara Janowsky to serve the financial maagement needs of the nascent cannabis industry. Our small and specialized team has partnered with over 250 businesses in similar industries to build functional financials that drive business growth:

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