Chart of accounts is the list of accounts and the account numbers that identify their location in the ledger. So, the chart of accounts has some importance. This importance of chart of accounts are as follows:
Importance of chart of accounts
Chart of accounts is made by an organization to prefix what accounts are used in the business. It has the following facilities:
- All accounts are listed here to deal with the business.
- It ensures a definite number of account titles.
- It indicates the scope of accounts to deal with the business.
- It ensures the limits of transactions.
- It protects the problems of title fixation.
- It locates the position of each account easily.
To gist up, the chart of accounts is the controlling tool of account titles for every business.
According to Wikipedia “It is applied to organize the finances of the object and to segregate investments, revenue, assets, and liabilities to give affected parties a better understanding of the economic health of the entity. Usually defined by an identifier and a subject describing text title and coded by account type.”
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