chart of accounts for dummies


R

Rob

Hello, I am just starting accounting for dummies and I probably haven't got
there yet but I have a question about chart of accounts vs real accounts and
transactions.

From what I am understanding Chart of Accounts aren't always actual accounts
but ways of keeping track of different categories of expenses?

For example I learned about account numbering where they start 1-9 for
assets liabilities etc., ie.
1000 checking

That seems logical because I'm very familiar with checking accounts but then
there might be accounts such as
Inventory, prepaid tax (fed/state), vehicles

I guess what I'm failing to understand is why you need a chart of account
for Inventory, prepaid tax (fed/state), vehicles

Many banks allow you to download all of your transactions and these days
they sometimes automatically categorize the expenses. So when you import it
into a program such as microsoft money or quicken Taco Bell would come up as
expense: dining out (or something similar). But even if they don't do that
for you, you can do that on your own after you download it or when you
manually enter them from receipts or monthly statement.

Now because of this it seems like I should have an account called
Groceries/Take Out (expense other 8000? or expense accounts 6000). BUT to me
it just seems reduntant. The money that paid for taco bell might have been
A: Cash (withdrawl or petty cash)
B: Check
C: Credit card (which then would probably be paid off through checking
account)

In summary it seems to me that CoA is just a way to track types of expenses
but if you can flag an individual transaction as a certain type or category
it seems like you could just run a report that would tell you the same
thing. Rather than requiring a 2nd entry of that transaction into a chart of
accounts.

I just wonder why this is the way it is. Or maybe I have it all wrong.
Hoping to get some good conversation going about this.
 
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H

Haskel LaPort

Rob said:
Hello, I am just starting accounting for dummies and I probably haven't
got there yet but I have a question about chart of accounts vs real
accounts and transactions.

From what I am understanding Chart of Accounts aren't always actual
accounts but ways of keeping track of different categories of expenses?

For example I learned about account numbering where they start 1-9 for
assets liabilities etc., ie.
1000 checking

That seems logical because I'm very familiar with checking accounts but
then there might be accounts such as
Inventory, prepaid tax (fed/state), vehicles

I guess what I'm failing to understand is why you need a chart of account
for Inventory, prepaid tax (fed/state), vehicles

Many banks allow you to download all of your transactions and these days
they sometimes automatically categorize the expenses. So when you import
it into a program such as microsoft money or quicken Taco Bell would come
up as expense: dining out (or something similar). But even if they don't
do that for you, you can do that on your own after you download it or when
you manually enter them from receipts or monthly statement.

Now because of this it seems like I should have an account called
Groceries/Take Out (expense other 8000? or expense accounts 6000). BUT to
me it just seems reduntant. The money that paid for taco bell might have
been
A: Cash (withdrawl or petty cash)
B: Check
C: Credit card (which then would probably be paid off through checking
account)

In summary it seems to me that CoA is just a way to track types of
expenses but if you can flag an individual transaction as a certain type
or category it seems like you could just run a report that would tell you
the same thing. Rather than requiring a 2nd entry of that transaction into
a chart of accounts.

I just wonder why this is the way it is. Or maybe I have it all wrong.
Hoping to get some good conversation going about this.

Because in this universe there is always a good and evil, a right from
wrong, a ying and a yang, a start of accounting for dummies and an end.

Some people are not content in knowing where they are but need to know how
they got there.
 
L

Laura

Rob said:
Hello, I am just starting accounting for dummies and I probably haven't
got there yet but I have a question about chart of accounts vs real
accounts and transactions.

From what I am understanding Chart of Accounts aren't always actual
accounts but ways of keeping track of different categories of expenses?

For example I learned about account numbering where they start 1-9 for
assets liabilities etc., ie.
1000 checking

That seems logical because I'm very familiar with checking accounts but
then there might be accounts such as
Inventory, prepaid tax (fed/state), vehicles

I guess what I'm failing to understand is why you need a chart of account
for Inventory, prepaid tax (fed/state), vehicles

Many banks allow you to download all of your transactions and these days
they sometimes automatically categorize the expenses. So when you import
it into a program such as microsoft money or quicken Taco Bell would come
up as expense: dining out (or something similar). But even if they don't
do that for you, you can do that on your own after you download it or when
you manually enter them from receipts or monthly statement.

Now because of this it seems like I should have an account called
Groceries/Take Out (expense other 8000? or expense accounts 6000). BUT to
me it just seems reduntant. The money that paid for taco bell might have
been
A: Cash (withdrawl or petty cash)
B: Check
C: Credit card (which then would probably be paid off through checking
account)

In summary it seems to me that CoA is just a way to track types of
expenses but if you can flag an individual transaction as a certain type
or category it seems like you could just run a report that would tell you
the same thing. Rather than requiring a 2nd entry of that transaction into
a chart of accounts.

I just wonder why this is the way it is. Or maybe I have it all wrong.
Hoping to get some good conversation going about this.
Why don't you start here:
http://www.dwmbeancounter.com/tutorial/Tutorial.html Lesson 1 actually does
a nice job of explaining the various sections (assets, liabitiies, equity,
income, expenses) that make up the Chart of accounts.
 
R

Rob

I appreciate the link I'll check it out. I didn't know what to make of that
your post Haskel, it sounded like you were just yankin my chain.
 
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H

Haskel LaPort

Rob said:
I appreciate the link I'll check it out. I didn't know what to make of that
your post Haskel, it sounded like you were just yankin my chain.
Not yankin, for every debit there must be an equal and opposite credit.
 
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