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Definition of Accounts tree

Definition of Accounts tree
Definition of Accounts tree

accounting software

Accounting software or applications record and process accounting transactions within functional units such as accounts payable, accounts receivable, journal, general ledger, and trial balance. These programs may depend on the web so that they can be accessed from anywhere and at any time using any device connected to the network, or it may be dedicated to the desktop so that these disparities are reflected in the cost, and during the article, the definition of the tree of accounts will be identified, which It depends on accounting software.

Financial Statements

Knowing the terms that will be mentioned will simplify understanding the definition of the chart of accounts, financial statements are any report on the financial status or results of the operations of a company, government or any organization, and this term is often used more narrowly in commercial and financial circles to refer to the balance sheet, income statements and profit statements The amount and type of assets, expenses, and investments of the owners “equity” are shown in the balance sheet as of a certain date, and the balance sheet also indicates liquidity and solvency, so that liquidity is measured by the ease of converting assets into cash, while solvency is measured by the company’s ability to Paying debts when due. Short-term creditors, investors, business managers, and government agencies are the most important users of financial statements.

General ledger

Before identifying the definition of the tree of accounts, the general ledger must be known, which is the database for the tree of accounts, as the general ledger represents a system for keeping records of the company’s financial data with records of debit and credit accounts approved through the trial balance, and the general ledger provides a record for each A financial movement that occurs during the operational period of the company's life, in addition to the general ledger retaining the account information necessary for the preparation of the company's financial statements. The system used by accountants to keep and organize the financial data used to create the organization's financial statements, and transactions "financial movements" are posted to sub-ledger accounts, as defined in the company's account tree, then the transactions are closed or summarized in the general ledger and the accountant builds a balance Audit It serves as a report on all ledger account balances.

Definition of Accounts tree

The chart of accounts or the chart of accounts for short COA can be defined as a list of all the accounts used in the general ledger of the organization, and the chart of accounts is used by an accounting program for the information collected in the financial statements of the organization, and the chart of accounts is usually classified according to the account number in order to facilitate the task of identifying The placement of specific accounts, and these accounts are numeric as well as can also be alphabetic or alphanumeric, and accounts are usually classified in the order they appear in the financial statements, starting with the balance sheet and continuing in the income statement, so the tree of accounts begins with cash and revenue and then continues with revenue accounts Hence expenses, and many organizations structure their chart of accounts so that expense information is collected separately by the relevant department, so the sales department, engineering department, and accounting department all have the same set of expense accounts, and the exact order of defining the chart of accounts is based on individual business needs.
The ideal classification of accounts "types of accounts" in the definition of the tree of accounts is as follows:
  • Assets:
  1. Cash: “main current account and payroll account”
  2. Petty cash box.
  3. tradable securities.
  4. accounts receivable.
  5. Provision for doubtful accounts or debts “adverse account”.
  6. Prepaid expenses.
  7. Inventory.
  8. Fixed assets.
  9. Accumulated depreciation is a "counter-account".
  10. other assets.
  • Liabilities:
  1. Accounts Payable, Accounts Payable.
  2. Payable obligations.
  3. Taxes payable.
  4. Payable wages.
  5. outstanding bonds.
  • Shareholders' equity:
  1. common stock.
  2. preferred stock.
  3. Retained earnings.
  • Revenues:
  1. revenue, income.
  2. Sales returns and allowances are "counter-accounted".
  • Expenses:
  1. Expenses of goods sold.
  2. Advertising expenses.
  3. Bank fees.
  4. Depreciation expenses.
  5. Payroll tax expenses.
  6. rental expenses.
  7. Supplier expenses.
  8. wage expenses.
  9. Service expenses.
  10. Other expenses.

Example of a tree of accounts

After identifying the definition of the chart of accounts, the above will be identified through an example of the chart of accounts, as each account is usually assigned a number based on the order in which it will appear in the financial statements, and balance sheet accounts are usually presented first, followed by income data accounts, Therefore, account numbers are assigned and listed in order, assets and liabilities, property rights or shareholders’ equity, income and expenses, and others. Most companies use a numbering system that classifies accounts in groups in the categories of financial statements. The numbering for assets, for example, may be 001-1 and for liabilities 001-2 so that Everything about assets, liabilities, or what has been numbered is numbered in the specified numerical range. The numbering system helps bookkeepers and accountants keep track of accounts and avoid clutter and confusion.

Although most accounting software such as Quickbooks comes from a master or default list of accounts, bookkeepers can set up and customize their account structure to suit their business. Similar as supplies, management may want to assess the costs of supplies for each department to see which of these departments are using their resources most efficiently. There are many different ways to build a tree of accounts but the most important thing to remember is that simplicity is key, the more accounts are added to the model, and the more complex the numbering system is, the more difficult it is to use the accounting system.
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