Full Form of COA

Full-Form COA (Chart of Account)

The full form of COA stands for Chart of Account. It is a list of accounts that a company generates to maintain all accounts that have been used for transaction purposes in its accounting system with the purpose of organizing, recording and segregating. This contains various accounts like revenue, expenditure, assets, liabilities, profits, etc. This can range from a simple list in a retail store consisting of 10 to 15 accounts to a very complex coverage in a large business which maintains hundreds of thousands of accounts.

How does it Work?

Company XYZ uses the following sample of COA:

Account NameAccount NumberDescription
Current Assets
Accounts Receivables101001$100
Inventory101002$100
Non-Current Assets
Plant Property & Equipment102001$100
Transport102002$100
Current Liabilities
Accounts Payable103001$100
Accrued Liabilities103002$100
Non-Current Liabilities
Long-Term Debt104001$100

Example

Suppose a company buys $1 million worth of land for its manufacturing business. The accounts department is obliged to make journal entries to keep records and maintain financial guidelines for the company. The following will be the entry in books of accounts:

Account NameAccount NumberDescription
1001Cash and EquivalentsCurrent Asset, Balance Sheet
1002Accounts ReceivablesCurrent Asset, Balance Sheet
1003InventoryCurrent Asset, Balance Sheet
2001Long-Term SecuritiesNon-Current Asset, Balance Sheet
2002GoodwillNon-Current Asset, Balance Sheet
2003Plant Property & EquipmentNon-Current Asset, Balance Sheet
3001Accounts PayableCurrent Liabilities, Balance Sheet

On the date, dd/mm/yyyy, account number 2003, Plant property and equipmentPlant Property And EquipmentProperty plant and equipment (PP&E) refers to the fixed tangible assets used in business operations by the company for an extended period or many years. Such non-current assets are not purchased frequently, neither these are readily convertible into cash. read more account, debited with $1 million while account number 1001 credited with $1 million. Notice that the two accounts’ information can be fetched from the Chart of Accounts laid below.

Types

Types of COA

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Source: Full Form of COA (wallstreetmojo.com)

  1. Operating: This tracks accounts that are operative in nature, i.e., regular transaction accounts.
  2. Business: Which uses all accounts relevant to the business or corporate function.
  3. Country-Specific: It is those who operate based on different accounting standards or legal standards of countries.

Importance

Full Form of  COA.jpg

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Source: Full Form of COA (wallstreetmojo.com)

Difference Between COA and Ledger

  1. A LedgerLedgerLedger in Accounting, also called the Second Book of Entry, is a book that summarizes all the journal entries in the form of debits & credits to use for future reference & create financial statements. read more or General LedgerGeneral LedgerA general ledger is a book of accounts that records the everyday business transactions in separate ledger accounts. The entries made in a ledger can be verified by getting a NIL balance on summing up all the ledger account amounts in the trial balance.read more is the actual book of accounts used for making accounting entriesAccounting EntriesAccounting Entry is a summary of all the business transactions in the accounting books, including the debit & credit entry. It has 3 major types, i.e., Transaction Entry, Adjusting Entry, & Closing Entry. read more, whereas a Chart of Accounts is simply a listing of all accounts related to the business of a company.
  2. A Ledger is made by summarizing all available journals and then further accounting books like a trial balance. On the other hand, it is an independent record, although used for further correspondence and recordkeeping.
  3. Furthermore, a Chart of Accounts can be used by multiple companies for their record while Ledger is specific to a company because of its inherent nature of keeping transactional entries of a business.

Benefits

  1. A good COA is always well-prepared in its initial stages and serves the purpose by further improvisations until it addresses business needs.
  2. It reduces the effort and time to consolidate information on management requests in the future.
  3. It can also be used in benchmarking of business units and reduces procedures related to reconciliationReconciliationReconciliation is the process of comparing account balances to identify any financial inconsistencies, discrepancies, omissions, or even fraud. At the end of any accounting period, reconciliation involves matching balances and ensuring that debits (credits) from one account for one transaction is same as the credit (debits) to another account for the same transaction.read more.

Limitations

Conclusion

  • This is very helpful for a business in systematic segregation of all its accounts. It helps company management and all stakeholders, most specifically supply chain partners, business analysts, and investors.
  • This is modifiable as per business requirements, and however, it requires expertise and efforts to keep consistent records in a chart of account as any discrepancy can give the wrong picture of business health. In the modern world of high-tech business management software and systems are taken careers, businesses still owe a great deal of attention and care toward handling the most basic elements like the chart of account.

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This has been a guide to the Full Form of COA, i.e. (Chart of Account) and its definition. Here we discuss COA’s examples, importance, and how it works along with types, benefits, and limitations. You may refer to the following articles to learn more about finance –