A company’s chart of accounts (COA) is a list of all the financial accounts in the company’s general ledger.
The process of combining accounting data into a standardized set of financials is necessary for the preparation of financial statements.
Companies manage their finances using a chart of accounts (COA) and assisting in the accomplishment of this goal and ensuring that all financial statements are in accordance with applicable reporting standards.
Financial statements
Financial statements can be broken down into the following categories: the Balance Sheet, the Income Statement, and the Cash Flow Statement. Such documentation makes it possible to examine and evaluate several aspects of an organization’s financial health and performance.
- Balance Sheet: To see the company’s assets and liabilities : Assets = Equity + Liabilities
- Income statement: Simply, A Profit and loss account is a record of a company’s revenues and expenses for a specific period of time : Profit & Loss = Revenue – Expense
- Cash flow statements: To illustrate the actual cash flow Operating + Investing + Financial Activities ( Direct and Indirect Method )
Chart of Accounts (COA) – Design Tips
A standard procedure among businesses is to assign sequential numbers to each account type used in their financial statements.
SAP account numbers : The maximum length is ten characters
This numbering scheme makes it simpler for bookkeepers and accountants to keep track of the postings made to the accounts ledger in an efficient manner.
Example : 6 Digits concepts
- Assets: 1 XX XXX
- Liabilities: 2 XX XXX
- Owners Equity: 3 XX XXX
- Revenues: 4 XX XXX
- Expenses: 5 XX XXX
- Others : 6 XX XXX and 7 XX XXX
Chart of Account : Balance sheet + Profit & Loss
Another Example : 6 Digits concepts – Categorized based on Account types
Balance Sheet :
Assets ( Non Current (>12) + Current (<12) )
= Equity + Liabilities ( Non Current (>12) + Current (<12) )
Non Current Assets :
- Intangible Assets :11 X XXX
- Other Tangible Assets : 12 X XXX
- Land & Buildings : 13 X XXX
- Equipment and Machinery ( Operational ) : 14 X XXX
- Property, plant, and equipment (PP&E) : 15 X XXX
- Other Financial Assets : 16 X XXX
Current Assets :
- Inventory : 21 X XXX
- Trade Receivables : 22 X XXX
- Cash at Banks : 23 X XXX
- Petty Cash : 24 X XXX
- Other Current Assets : 25 X XXX
Equity :
- Issued Capital : 31 X XXX
- Reserves : 32 X XXX
- Revenue Reserves : 33 X XXX
- Accumulated other comprehensive income : 34 X XXX
Non Current liabilities :
- Long-term provisions : 41 X XXX
- Deferred Tax Liabilities: 42 X XXX
- Long-term Financial Liabilities: 43 X XXX
Current liabilities :
- Short-Term Provisions: 44 X XXX
- Trade Payables: 45 X XXX
- Tax Payables: 46 X XXX
- Tax Provisions ( like Income Tax ) : 47 X XXX
- Other Current Liabilities : 48 X XXX
- Current Financial Liabilities : 49 X XXX
Profit and Loss Statements :
Profit & Loss = Revenue – Expense
Revenue :
Sales Revenue : 51 X XXX
Sales Deductions : 52 X XXX
Other Sales Transactions ( Scrap and etc. ) : 53 X XXX
Other Operating Income :
Other Operating Income : 59 X XXX
Cost-reducing Revenue – Operational
Finished Goods – Change In Inventory ( stock change account )= 54 X XXX
Cost-reducing Revenue – Others
Purchase Accounts (Direct ) : 61 X XXX
Purchases other charges ( Freight / Clearing , etc..) : 62 X XXX
Material Consumptions : 63 X XXX
Cost of Goods Sold : 64 X XXX
Raw Material – Change In Inventory – 64 X XXX
Others – Material Loss/Physical Inventory – 65 X XXX
Expense
Wages Operational ( Direct ): 71 X XXX
Salaries : 72 X XXX
Social Contributions : 73 X XXX
Other Personnel Costs: 74 X XXX
Administrative Expense : 75 X XXX
Promotional Expense : 76 X XXX
Information Technology Expense : 77 X XXX
Other Operational Expense : 78 X XXX
Depreciation and Amortization – Depreciation Expense : 79 X XXX
Financial Income and Expense
Financial Income :81 X XXX
Financial Expense :82 X XXX
Others
Secondary Costs : 9XX XXX
- Operation costs not part of financial general ledger posting and used for cost module.
Opening Balance : 99X XXX
- Initial Upload during system conversation
