What is chart of account definition?
COA is a list of account numbers defined by the company to list out all of its expenses, revenue, assets , and liability for your organization operations, it is a reference numbers for all included elements in your trial balance and financial statements.
It may includes many reporting dimension like branch code, project number, contract number
based on your reports requirements.
Second segment on COA is an index of cost centers for all of organization expenses.
You will record your expenses based on cost center, which mean link the related department to invoice or expenses.
Designing many segments for COA will be very useful in generating helpful parameters for your financial reports,
You will be able to generate report based on branch, account number, cost center, project, contracts and so on.
Maintaining a Chart of accounts segments will give you fixability while exporting your financial reports.
This list of accounts will be used while recording journal entry transaction in order to have an accurate trail balance and financial statements.
How to build Chart of Account?
First you should list all your account numbers which covers all of your trial balance,
Each code should represent specific type of your transactions,
for instance, all the account number starts with 1xxxx is Assets,
and accounts starts with 2xxx is Liability, 3xxx is Equity, and so on.
List of Accounts Structure:
Assets, Expenses, Liability, Ownership, Revenue…etc
10000xxx Assets
20000xxx Liabilities
30000xxx Equites.
40000xxx Revenue.
50000xxx Expenses.
Parent and child Account concept.
All the above main structure account are parent account, you should not record a direct transaction on the parent account,
instead you have to add child account for each one. for instance a sub account for the expenses 5000000
is operation expenses, it could be 5100000, and new level for operation account may be rent,
so the account number for the rent will be 51001000,
You can also add new level or rent by create sub category of rent, like car rent, building rent
51001010 Car rent
51001020 Building rent.
then your Parmenter on report will be like this:
5000000 Expenses >> 5100000 operation expenses >> 51001000 Rent >> 51001010 Car Rent.
When you record your transaction you will use only the child account 51001010
Cost centers:
Cost centers covers all the units which you will add the cost against it.
Cost centers are considered as a segment or dimension for chart of account.
Sectors and departments are cost centers, if your company launch a new project, it can be a cost center.
after you record your transactions you will be able to report all your expenses based on cost center.
in addition you will use the cost center while building your budget.
You can’t generate a reports for actual vs budget without having a cost center in your ERP system.
Cost center should be mapped to correctly with HR organization hierarchy.
For Instance:
IT Sector can be 5000 , IT support department 50100, IT development department 50200 and so on.
5000 IT Sector>> 50100 IT support department.
Put in consideration that Parent and child concept is also applied while building cost centers,
In the previews example you will record your transaction on the child level, which is 50100 IT support department.
What is Chart of Account segments:
Account numbers, Cost center, company code, project number(optional), in addition to any other reporting segment required by the company.
| Segment | Segment Type |
| Segment 1 | Company code |
| Segment 2 | Account numbers |
| Segment 3 | Cost Centers |
| Segment 4 | Project Number (optional) |
| Segment 5 | Any other dimensions based on your requirements. |
Code combination:
code combination means listing all the COA segments in one line.
company code >> Account number >> cost center >>
50.500100100.70100.00 is a code combination which must used as a compete code while recod a GL transaction.
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