The Chart of Accounts is the blueprint of the accounts in your organization.

The fundamental framework of your Chart of Accounts is grounded in the principles of double-entry accounting, a globally recognized standard for assessing a company’s financial status.

The Chart of Accounts presents a hierarchical view of the names of Accounts (including Ledgers and Groups) necessary for managing a company’s financial records. While BizCentric initially establishes a basic chart of accounts for each company, you have the flexibility to customize it to align with your specific requirements and regulatory obligations.

For every company, the Chart of Accounts serves as a blueprint for classifying accounting entries, often driven by statutory mandates such as tax regulations and governmental compliance.

The Chart of Accounts serves as a tool to address critical financial queries, such as:

• What is the overall value of your organization?
• How much debt is incurred?
• What level of profit is generated (and consequently, the tax liability)?
• What are the sales figures?
• How are expenses distributed?

For business managers, gaining insights from the Chart of Accounts is invaluable in assessing the health and performance of their enterprise.

Note: If interpreting a Balance Sheet seems daunting, consider investing time in understanding it; the knowledge gained will be invaluable. Collaborating with an accountant can also be beneficial in setting up your Chart of Accounts.

To access the Chart of Accounts list, navigate to: > Home > Accounting > Accounting Masters > Chart of Accounts.

1. How to Create/Edit Accounts

BizCentric comes with a standard set Chart of Accounts. Instead of creating/modifying, you can also use the Chart of Accounts Importer tool. Please note that utilizing this tool will result in the existing Chart of Accounts being overwritten.

• Access the Chart of Accounts list.

Within this list, you can navigate group accounts, which encompass other accounts. Options include “Add Child” to create a subordinate account, “Edit” to modify an account, or “Delete” to remove it.

• The ability to create a child account will only be visible when selecting a Group (folder) type Account.
• Provide a name and number for the account.
• If intending for this to be a group account that can contain other accounts, mark the checkbox for ‘Is Group’.
• Select the appropriate Account Type, as certain fields may only allow selection of specific account types.
• Modify the currency if the account will handle transactions in a different currency than the company’s default. For further details, refer to the Multi Currency Accounting page.
• Click on “Create New” to finalize.

Common accounts you may wish to establish include:

• Expenses: for items like travel, salaries, telephone bills, etc.
• Current Liabilities: encompassing accounts such as Value Added Tax (VAT), Sales Tax, Equity, etc.
• Income: for revenue sources like Product Sales, Service Sales, etc.
• Fixed Assets: covering items such as buildings, machinery, furniture, etc.

 

> Tip: Accounts with different currencies are created when you receive or make payments to or from different currencies. For example if you are based in India and transact with USA, you may need to create accounts like ‘Debtors US’, ‘Creditors US’, etc.

Let us understand the main groups of the Chart of Accounts.

2. Account Types

Account types are mainly classified as income, expense, asset, or liability.

2.1 Balance Sheet Accounts

Balance Sheet accounts categorize into ‘Application of Funds (Assets)’ and ‘Sources of Funds (Liabilities),’ reflecting the net worth of your company at any given moment. At the beginning or end of a financial period, the total assets equal the total liabilities.

Accounting Note: If you’re new to accounting, you might question how Assets can be equal to Liabilities, suggesting the company owns nothing. Indeed, all investments made in the company to acquire assets (e.g., land, furniture, machinery) are made by the owners. Therefore, the owners are considered a liability to the company since profits ultimately belong to them.

In the event of a company closure, it would need to liquidate all assets and settle all liabilities (including profits) with the owners, leaving no residual value.

Each account within the Balance Sheet represents either an asset owned by the company (e.g., “Bank Account,” “Land and Property,” “Furniture”) or a liability (funds owed to external entities) like “Owners’ funds” or “Debt.”

Of particular importance are Accounts Receivable (funds pending collection from customers) and Accounts Payable (funds to be paid to suppliers), classified under Assets and Liabilities, respectively.

2.2 Profit and Loss Accounts

Profit and Loss is the group of ‘Income’ and ‘Expense’ accounts that represent your accounting transactions over a period.

Unlike Balance Sheet accounts, Profit and Loss accounts (or PL accounts) do not represent net worth (Assets), but rather represent the amount of money spent and collected in servicing customers during the period. Hence, at the beginning and end of your Fiscal Year, they become zero.

In BizCentric it is easy to keep track of Profit and Loss via the Profit and Loss chart.

 

Note that, on the first day of the year you have not made any profit or loss, but you still have assets, hence balance sheet accounts never become zero at the beginning or end of a period.

2.3 Groups and Ledgers

In BizCentric, there are primarily two types of accounts: Groups and Ledgers. Groups can contain sub-groups and individual ledgers, while ledgers represent the lowest level in the account hierarchy and cannot have further accounts within them.

Accounting transactions can only be recorded against Ledger Accounts, not Groups.

Information: The term “Ledger” traditionally refers to a page in an accounting book where entries are recorded. Typically, there’s one ledger for each account (e.g., a customer or a Supplier)

Note: An Account “Ledger” is occasionally referred to as an Account “Head.”

2.4 Other Account Types

In BizCentric, when creating a new Account, you can provide additional details to facilitate selection in scenarios such as ‘Bank Account’ or ‘Tax Account’. However, these details do not affect the Chart of Accounts itself.

Here’s an explanation of different account types:

• Accumulated Depreciation: Stores the total accumulated depreciation information of company assets, which appears on the balance sheet.
• Asset Received But Not Billed: A temporary liability account that holds the value of assets received but not yet billed.
• Bank: Used to create bank accounts. There must be at least one group account of type “Bank” in the Chart of Accounts.
• Cash: Used to create cash accounts. There must be at least one group account of type “Cash” in the Chart of Accounts.
• Chargeable: Stores additional charges applied to items, such as “Freight and Forwarding Charges”.
• Capital Work in Progress (CWIP): Stores current charges associated with creating fixed assets, like construction costs for a building not yet in use.
• Cost of Goods Sold (COGS): Accumulates all costs incurred while manufacturing or purchasing a product or service, appearing on the income statement.
• Depreciation: Records the expense of asset depreciation, appearing on the income statement.
• Equity: Represents transactions with business owners or shareholders.
• Expenses Included in Asset Valuation: Records expenses (excluding direct material costs) included in the landed cost of an asset.
• Expenses Included in Valuation: Records expenses (excluding direct material costs) included in the landed cost of an item, used in Perpetual Inventory.
• Fixed Asset: Records costs associated with fixed assets.
• Income Account: Represents sources of income or revenue for the company.
• Payable: Represents amounts owed by the company to its creditors or suppliers.
• Receivable: Represents amounts owed to the company by its debtors or customers.
• Round Off: Records rounding-off amounts in invoices for accurate tracking.
• Stock: Used to create warehouse accounts.
• Stock Adjustment: Records adjustments made to stock or inventory, typically at the same level as Cost of Goods Sold.
• Stock Received but Not Billed: A temporary liability account holding the value of stock received but not yet billed, used in Perpetual Inventory.
• Tax: Stores all tax accounts like VAT, TDS, GST, etc.
• Temporary: Useful for balancing incomes and expenses, especially when transitioning to BizCentric mid-year with outstanding accounting entries.

Note: When making Payment Entries, the default bank account will be fetched in the following order if set:

1. From the Company form
2. From the Mode of Payment default account
3. From the Customer/Supplier default bank account
4. Manually selected in the Payment Entry

2.5 Financial statements

Financial statements for your company are easily viewable in BizCentric. You can view financial statements such as Balance Sheet, Profit and Loss statement, and Cash flow statement.

2.6 Account Number

A typical Chart of Accounts follows a numerical system for organization. Each major category is designated with a specific number, and all sub-categories within that major category share the same number. For instance, if assets are categorized with numbers starting from 1000, cash accounts might be designated as 1100, bank accounts as 1200, accounts receivable as 1300, and so forth. It’s common to maintain gaps between account numbers to allow for the addition of new accounts in the future.

When creating an account from the Chart of Accounts page, you have the option to assign a number. Additionally, you can edit a number directly from the account record by clicking the “Update Account Name / Number” button. Upon updating the account number, the system automatically adjusts the account name to include the newly assigned number.

3. Related Topics

1. Opening Balance
2. Journal Entry
3. Inter Company Journal Entry
4. Accounting Reports
5. Multi-Currency Accounting