1.

what is charts of accounts

A chart of accounts is a list of account names used to label transactions and keep tabs on a
company's finances. Think of it as the filing cabinet for your small business's accounting system. It
organizes transactions into groups, which helps track money coming in and out of the company.

KEY TAKEAWAYS

A chart of accounts (COA) is a financial organizational tool that provides a complete listing of every
account in the general ledger of a company, broken down into subcategories.

It is used to organize finances and give interested parties, such as investors and shareholders, a
clearer insight into a company’s financial health.

To make it easier for readers to locate specific accounts, each chart of accounts typically contains a
name, brief description, and an identification code.

2.what is the importance of charts of accounts in financial statement.

A company's chart of accounts represents the set accounts that will serve to support all of its journal
entries. But, contrary to what is commonly applied in companies, the most important factor in the
chart of accounts is the detailed and preferably exhaustive description of the nature of each ledger
account.

The detailed description of the accounts, often referred to as accounting policies, company
accounting handbook or company accounting bible, should provide all kind of journal entries that
should be allocated in each account and which journal entries should not be recorded. A good
handbook also contains examples of operations and situations to be posted or not on each account.