Chart of Accounts

(Explanation)

Harold Averkamp
CPA, MBA

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purchaser only. We do not allow our materials to be reproduced or distributed elsewhere.
Introduction to Chart of Accounts
A chart of accounts is a listing of the names of the accounts that a company has identified and made
available for recording transactions in its general ledger. A company has the flexibility to tailor its
chart of accounts to best suit its needs, including adding accounts as needed.

Within the chart of accounts you will find that the accounts are typically listed in the following order:

Balance sheet accounts • Assets

• Liabilities
• Owner’s (Stockholders’) Equity

Income statement accounts • Operating Revenues

• Operating Expenses
• Non-operating Revenues and Gains
• Non-operating Expenses and Losses

Within the categories of operating revenues and operating expenses, accounts might be further
organized by business function (such as producing, selling, administrative, financing) and/or by
company divisions, product lines, etc.

A company’s organization chart can serve as the outline for its accounting chart of accounts. For
example, if a company divides its business into ten departments (production, marketing, human
resources, etc.), each department will likely be accountable for its own expenses (salaries, supplies,
phone, etc.). Each department will have its own phone expense account, its own salaries expense, etc.

A chart of accounts will likely be as large and as complex as the company itself. An international
corporation with several divisions may need thousands of accounts, whereas a small local retailer
may need as few as one hundred accounts.

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Sample Chart of Accounts For a Large
Corporation
Each account in the chart of accounts is typically assigned a name and a unique number by which
it can be identified. (Software for some small businesses may not require account numbers.)
Account numbers are often five or more digits in length with each digit representing a division of the
company, the department, the type of account, etc.

As you will see, the first digit might signify if the account is an asset, liability, etc. For example, if the
first digit is a “1” it is an asset. If the first digit is a “5” it is an operating expense.

A gap between account numbers allows for adding accounts in the future. The following is a partial
listing of a sample chart of accounts.

Current Assets (account numbers 10000 - 16999)

10100   Cash - Regular Checking
10200   Cash - Payroll Checking
10600   Petty Cash Fund
12100   Accounts Receivable
12500   Allowance for Doubtful Accounts
13100   Inventory
14100   Supplies
15300   Prepaid Insurance

Property, Plant, and Equipment (account numbers 17000 - 18999)

17000   Land
17100   Buildings
17300   Equipment
17800   Vehicles
18100   Accumulated Depreciation - Buildings
18300   Accumulated Depreciation - Equipment
18800   Accumulated Depreciation - Vehicles

Current Liabilities (account numbers 20000 - 24999)

20100   Notes Payable - Credit Line #1
20200   Notes Payable - Credit Line #2
21000   Accounts Payable
22100   Wages Payable
23100   Interest Payable
24500   Unearned Revenues

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Long-term Liabilities (account numbers 25000 - 26999)
25100   Mortgage Loan Payable
25600   Bonds Payable
25650   Discount on Bonds Payable

Stockholders’ Equity (account numbers 27000 - 29999)

27100 Common Stock, No Par
27500 Retained Earnings
29500 Treasury Stock

Operating Revenues (account numbers 30000 - 39999)

31010   Sales - Division #1, Product Line 010
31022   Sales - Division #1, Product Line 022
32015   Sales - Division #2, Product Line 015
33110   Sales - Division #3, Product Line 110

Cost of Goods Sold (account numbers 40000 - 49999)

41010   COGS - Division #1, Product Line 010
41022   COGS - Division #1, Product Line 022
42015   COGS - Division #2, Product Line 015
43110   COGS - Division #3, Product Line 110

Marketing Expenses (account numbers 50000 - 50999)

50100   Marketing Dept. Salaries
50150   Marketing Dept. Payroll Taxes
50200   Marketing Dept. Supplies
50600   Marketing Dept. Telephone

Payroll Dept. Expenses (account numbers 59000 - 59999)

59100   Payroll Dept. Salaries
59150   Payroll Dept. Payroll Taxes
59200   Payroll Dept. Supplies
59600   Payroll Dept. Telephone

Other (account numbers 90000 - 99999)

91800   Gain on Sale of Assets
96100   Loss on Sale of Assets

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Sample Chart of Accounts For a Small
Company
This is a partial listing of another sample chart of accounts. Note that each account is assigned a three-
digit number followed by the account name. The first digit of the number signifies if it is an asset,
liability, etc. For example, if the first digit is a “1” it is an asset, if the first digit is a “3” it is a revenue
account, etc. The company decided to include a column to indicate whether a debit or credit will
increase the amount in the account. This sample chart of accounts also includes a column containing a
description of each account in order to assist in the selection of the most appropriate account.

Asset Accounts

To
No. Account Title Increase Description/Explanation of Account

Checking account balance (as shown in company records),

101 Cash Debit currency, coins, checks received from customers but not yet
deposited.

Accounts Amounts owed to the company for services performed or

120 Debit
Receivable products sold but not yet paid for.

Merchandise
140 Debit Cost of merchandise purchased but has not yet been sold.
Inventory

Cost of supplies that have not yet been used. Supplies that
150 Supplies Debit
have been used are recorded in Supplies Expense.

Prepaid Cost of insurance that is paid in advance and includes a future

160 Debit
Insurance accounting period.

170 Land Debit Cost to acquire and prepare land for use by the company.

175 Buildings Debit Cost to purchase or construct buildings for use by the company.

Accumulated
Amount of the buildings' cost that has been allocated to
178 Depreciation – Credit
Depreciation Expense since the time the building was acquired.
Buildings

180 Equipment Debit Cost to acquire and prepare equipment for use by the company.

Accumulated Amount of equipment's cost that has been allocated to

188 Depreciation – Credit Depreciation Expense since the time the equipment was
Equipment acquired.

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Liability Accounts

To
No. Account Title Increase Description/Explanation of Account

210 Notes Payable Credit The amount of principal due on a formal written promise to pay.
Loans from banks are included in this account.

Accounts Amount owed to suppliers who provided goods and services to

215 Credit
Payable the company but did not require immediate payment in cash.

Wages
220 Credit Amount owed to employees for hours worked but not yet paid.
Payable

Amount owed for interest on Notes Payable up until the date of

Interest
230 Credit the balance sheet. This is computed by multiplying the amount of
Payable
the note times the effective interest rate times the time period.

Amounts received in advance of delivering goods or providing

Unearned
240 Credit services. When the goods are delivered or services are provided,
Revenues
this liability amount decreases.

Mortgage Loan A formal loan that involves a lien on real estate until the loan is
250 Credit
Payable repaid.

Owner’s Equity Accounts

To
No. Account Title Increase Description/Explanation of Account

Amount the owner invested in the company (through cash or

Mary Smith,
290 Credit other assets) plus earnings of the company not withdrawn by the
Capital
owner.

Amount that the owner of the sole proprietorship has withdrawn

Mary Smith, for personal use during the current accounting year. At the end
295 Debit
Drawing of the year, the amount in this account will be transferred into
Mary Smith, Capital (account 290).

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Operating Revenue Accounts

To
No. Account Title Increase Description/Explanation of Account

Amounts earned from providing services to clients, either for

Service cash or on credit. When a service is provided on credit, both this
310 Credit
Revenues account and Accounts Receivable will increase. When a service
is provided for immediate cash, both this account and Cash will
increase.

Operating Expense Accounts

To
No. Account Title Increase Description/Explanation of Account

Expenses incurred for the work performed by salaried

Salaries employees during the accounting period. These employees
500 Debit
Expense normally receive a fixed amount on a weekly, monthly, or annual
basis.

Expenses incurred for the work performed by non-salaried

Wages
510 Debit employees during the accounting period. These employees
Expense
receive an hourly rate of pay.

Supplies
540 Debit Cost of supplies used up during the accounting period
Expense

560 Rent Expense Debit Cost of occupying rented facilities during the accounting period.

Utilities Costs for electricity, heat, water, and sewer that were used during
570 Debit
Expense the accounting period.

Telephone
576 Debit Cost of telephone used during the current accounting period.
Expense

Costs incurred by the company during the accounting period for

Advertising
610 Debit ads, promotions, and other selling and expenses (other than
Expense
salaries).

Depreciation Cost of long-term assets allocated to expense during the current

750 Debit
Expense accounting period.

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Non-Operating Revenues and Expenses, Gains, and Losses

To
No. Account Title Increase Description/Explanation of Account

Interest and dividends earned on bank accounts, investments or

Interest
810 Credit notes receivable. This account is increased when the interest is
Revenues
earned and either Cash or Interest Receivable is also increased.

Gain on Sale Occurs when the company sells one of its assets (other than
910 Credit
of Assets inventory) for more than the asset's book value.

Loss on Sale Occurs when the company sells one of its assets (other than
960 Debit
of Assets inventory) for less than the asset's book value.

Accounting software frequently includes sample charts of accounts for various types of businesses.
It is expected that a company will expand and/or modify these sample charts of accounts so that
the specific needs of the company are met. Once a business is up and running and transactions are
routinely being recorded, the company may add more accounts or delete accounts that are never
used.

At Least Two Accounts For Every Transaction

The chart of accounts lists the accounts that are available for recording transactions. In keeping
with the double-entry system of accounting, a minimum of two accounts is needed for every
transaction—at least one account is debited and at least one account is credited.

When a transaction is entered into a company’s accounting software, it is common for the software
to prompt for only one account name—this is because the software is programmed to automatically
assign one of the accounts. For example, when using accounting software to write a check, the
software automatically reduces the asset account Cash and prompts you to designate the other
account(s) such as Rent Expense, Advertising Expense, etc.

Some general rules about debiting and crediting the accounts are:

• Expense accounts are debited and have debit balances

• Revenue accounts are credited and have credit balances

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 • Asset accounts normally have debit balances
• To increase an asset account, debit the account
• To decrease an asset account, credit the account

• Liability accounts normally have credit balances

• To increase a liability account, credit the account
• To decrease a liability account, debit the account

To learn more about debits and credits, visit our Explanation of Debits and Credits.

To learn more about the role of bookkeepers and accountants, visit our topic Accounting Careers.

Conclusion
You should consider our materials to be an introduction to selected accounting and bookkeeping
topics, and realize that some complexities (including differences between financial statement
reporting and income tax reporting) are not presented. Therefore, always consult with accounting
and tax professionals for assistance with your specific circumstances.

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