FINANCE CYCLE - Chart of Accounts

Chart of Accounts is a financial organizational tool that provides a

complete listing of every account in an accounting system. An account is a
unique record for each type of asset,  liability, equity, revenue, and expense.
 
The chart of accounts consists of balance sheet
accounts (assets, liabilities, and stockholders’ equity) and income statement
accounts (revenues, expenses, gains, losses). The chart of accounts can be
expanded and tailored to reflect the operations of the company.
Within the chart of accounts, you will find that the accounts are typically listed in
the following
order:
 
Balance Sheet Income Statement
Assets Operating Revenues
Liabilities Operating Expenses
Owner’s Equity Non-Operating Revenues and Gains
Non-Operating Expenses and
 
Losses
 
Within the categories of operating revenues and operating expenses,
accounts might be further organized by business function (such as producing,
selling, administrative, financing) and/or by company divisions, product lines, etc.
 
A company's organization chart can serve as the outline for its accounting
chart of accounts. For example, if a company divides its business into ten
departments (production, marketing, human resources, etc.), each department
will likely be accountable for its own expenses (salaries, supplies, phone, etc.).
Each department will have its own phone expense account, its own salaries
expense, etc.
 The Chart of Accounts is organized by drawers and levels. The
organization of the chart of accounts follows GAAP (Generally Accepted
Accounting Principles) in which there is  a  separate drawer for accounts
representing: Assets, Liabilities, Equity (Capital and Reserves), Revenues
(Turnover), Cost of Sales, Expenses (Operation Costs), Financing (Non-
Operating Income and Expenditure), and Other Revenues and Expenses
(Taxation and Extraordinary Items). These drawers, which have been defined by
SAP and cannot be changed, organize your accounts by level in a logical
fashion appropriate to your financial accounting and reporting processes.
 
In General Ledger, we distinguish between Balance Sheet
Accounts and Income Statement Accounts, also called Profit and Loss
Accounts.
Balance Sheet Accounts
 
 The first 3 drawers: Assets, Liabilities, Equity (Capital and Reserves) hold the Balance
Sheet Accounts, such as the Sales Tax account and the Accounts Payable
 The bookkeeping balance of these accounts is kept from one fiscal year to the
 The Balance Sheet Accounts – reflect the monitory value of the company - stock,
assets, debt, etc.
Profit and Loss Accounts
 
 The last 5 drawers: Revenues (Turnover), Cost of Sales, Expenses
(Operation Costs), Financing (Non-Operating Income and Expenditure),
and  Other  Revenues  and  Expenses  (Taxation and Extraordinary
Items) hold the Profit and Loss Accounts, such as the Income Note that
in some localizations, the lower drawers are not all profit and loss
account drawers.
 The bookkeeping balance of these accounts has to be cleared at the
end of each fiscal year –
this is the Period End Closing process (will be discussed in Unit 4: Financial
Periods Process).
 The Profit and Loss Accounts - reflect the changes in the company value, such
as: sell stock –
cost of goods sold, increase revenues.
 
A chart of accounts arranges a company's general ledger accounts in a
hierarchical structure. The top-level in the structure (level 1) consists of sections
or groups for a different types of accounts (assets, liabilities, capital and
reserves, turnover, and so on). The system displays the section as a cabinet
drawer (see figure). Each drawer has a section title, which you cannot change.
The system displays lower-level titles in blue and normal active accounts in the
black. Accounts that you have entered in the G/L Account Determination (default
accounts) are displayed in green. Levels 2 through 9 can contain
either active accounts or titles that combine several active accounts. Level 10
only contains active accounts. Because only active accounts can be posted
 to in SAP Business One, it is a good practice to have all your active
accounts at the same level. In reports, a title account summarizes all the
balances of each active account below it.
 
Viewing of Chart of Accounts
To view the existing Chart of Accounts:
Go to (1) Financials > (2) Chart of Accounts to:
 View the chart of accounts
 Change the properties of an account (To view and change
some of the account properties, choose the Accounts Details button

Color Coding of SAP B1 Chart of Accounts

Title Account – summarizes all the balances of each active account below it. A title
account is color-coded as blue in SAP Business One.
 Active Account – only active accounts can be posted in SAP Business One. It directly
increases or decreases the balance of the account through the debit and credit process.
An active account is color-coded as black in SAP Business One.
 Control Account – these accounts are already connected to marketing documents
(purchase and sales documents), balances will directly increase or decrease depending
on the nature of the transaction. A control account is color-coded as green in SAP
Business One.
Editing of Chart of Accounts
To edit Chart of Accounts:
 

Add:                     
A142000              
Prepaid Rent
               
A143000              
Office Supplies
Go to (1) Financials > (2) Edit Chart of Accounts to:
 Add a new title (To add new account, click Add Same-Level Acct or Add Sub-Level Acct)
 Delete an account (To delete an account, right-click on the account you  would 
like to delete > Advanced > Delete Account)
 Note: You can only delete an account that has no postings
 Move title and accounts within the structure of the chart of accounts