A chart of accounts, often shortened to COA, is the master list of all the accounts a business uses, organised by type. It is the index of the ledger.
What it means
Every transaction has to post to an account, and the chart of accounts is where those accounts are defined and numbered - assets, liabilities, equity, income and expenses, usually in that order. A well-designed chart makes reporting straightforward, because related items sit together and totals are easy to draw.
Where it fits in
Payroll needs specific accounts in the chart: a salary or wages expense, and liability accounts for PAYE, UIF, SDL and net pay. The payroll journal posts to these, so the chart has to contain them for payroll to be recorded cleanly.
Key rules
- The structured list of every account, grouped by type.
- Usually ordered assets, liabilities, equity, income, expenses.
- Defines and numbers the accounts transactions post to.
- Must include the expense and liability accounts payroll uses.
