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A Chart of Accounts is more than a list of General Ledger Accounts. A functing Chart of Accounts is:

(1) the center of the financial record keeping process

(2) a 'posting map' for recording financial transactions

(3) the outline for financial reports

Developed correctly, the Chart of Accounts will clearly communicate financially significant information; information that informs owners and managers about the financial condition of their venture and that assist them in making prudent, accurate, proactive business decisions.

A functional Chart of Accounts has three characteristics:

  1. Reasonable size - Reports should be no longer that two pages.
  2. Organized Logically - Balance Sheet GL Accounts are pretty well set by Accouting standards; Profit and Loss GL Accounts are yours to toy with.
  3. Defined - Each GL Account needs a detailed definition to assist the non-accounting employees in understanding the nature of each account and to guide the bookkeeper (espically a new bookkeeper) in recording transactions.

The point here is, 'don't just list expenses' think through the financial significances of each GL Account.'

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Q: Accounting for business chart of accounts?
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