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Chart of Accounts

02 August 2014 By In Blogs

Chart of Accounts

A ‘make sense’ chart of accounts is important in every organisation. It is the very first task that should be considered and performed when an organisation is in the process of setting up the accounting system whether it is computerised or it is manually done. The chart of accounts is an essential tool that is necessary for gathering information and organising information about the business need and also keeping track of where the money in the business is coming in from and where it is being taken to (Bragg, 2010).  For any business to survive, it needs have useful information that will help it to remain competitive. The accounting system of a business should be used to provide information and its design should be able to accommodate the detailed and summarized information. The company or businesses financial reports are dependent mostly on how well the chart of accounts has been designed. A properly designed system of accounts in a business should have a chart of accounts as one of the key things.


The chart of accounts creates the foundation that is very essential and much needed for a business system that is used to keep records. It is thus necessary that certain criterion is used to set up the chart of accounts (Froehlich, 1987). Some criteria to use when setting up this chart of accounts include; whether it will be computerised or manual, the type of business, the financial reports and financial information that is needed to manage the company, the information necessary for any existing special requirements for regulatory reports, information that is necessary when preparing tax returns and also financial requirements for reports and those who are concerned. Others are the size of staff in the company, the capabilities of the staff, the need for the system and the business complexity.

When a company is undertaking a changeover from an older, outdated chart of accounts to new chart of accounts, it is possible that there are some difficulties that could be associated with the process. Some of the problems could be the reports could be unable to produce the necessary information that is needed by an organisation to meet tax needs or other regulatory obligations. Another difficulty is difficulty in training. When doing a change over, the staffs have to be trained on how to operate the new chart of accounts and this could take a while to do.  Lack of flexible integration of mergers and acquisitions could be a challenge in the changeover. There also needs to be clarity on who is in-charge of the new chart of accounts and also in-charge of maintaining it. Lack of clarity leads to confusion and problems could arise as a result (Mcgee, 2006).


Subsidiary ledgers help students to keep accounting records in an orderly manner and they are easy to keep organised.  The reason why it is easier for a company to keep a subsidiary ledger is because it contains more details as well as specific details that support general ledgers. Subsidiary ledgers are of great benefit as the company has the overall control of the information that is in the ledgers and when for instance a company needs to fix something in their payable accounts and receivable accounts when they need to make a review of their balances, then the subsidiary ledgers are essential and make it much easier.

Read 1593 times Last modified on Saturday, 02 August 2014 09:20
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You are here: Home Blog Chart of Accounts