What is a Chart of Accounts?

On this page:

• Some principles about the Chart of Accounts
• Really bad example of a Chart of Accounts
• Better example of a Chart of Accounts
• Template for Chart of Accounts for Football Club

Principles for Developing a Chart of Accounts

This is a complex subject matter to try to explain, unless you already have had some accountancy training.

Let's start with a simple statement:

It is very important to have a Chart of Accounts which is appropriate to your organisation.

Because it is a difficult subject, here's a mind map of how this topic will be explained.

The diagram below is clickable for more information.

It is quite difficult to explain what a chart of accounts is, and what the effect is if it is not correctly set up.

Perhaps the best way to explain is by example.

Principles you need to consider

First Principle . .

Accounting is an activity in which financial transactions are recorded and summarised to produce information which is used to manage the financial performance of a business

In a business, even a sport and recreation business, there are vast numbers of financial transactions on a week-to-week basis. It is not possible to manage a business by looking at each and every transaction. Instead the accounting process summarises and simplifies information for the business manager (or management committee). The final step in the accounting process is a set of readable, understandable, and useful financial reports.

If no-one can understand the financial reports, then they are not useful.

Second Principle . .

There is a delicate balance between having too much information in the financial reports and too little. Either way, the value of the financial reports is diminished to the manager or management committee.

The chart of accounts needs to be set up so as to provide the right amount of detail in the financial reports. Every business (sport and recreation organisation) will be different, and therefore there is no magic formula for a chart of accounts.

As a general rule though err on the side of using a simpler chart of accounts. Try to make it easy for the manager (management committee) to ready the financial reports.

Third Principle . .

In setting up, or redesigning a chart of accounts for a business, you need to think about what information you really need.

For example, if you are running a football club which generates income from football programs and the bar and gaming machines in the clubhouse, the management committee are most likely to need information that tells them:

1. How much profit is being generated by the bar and gaming machine operations in the clubhouse, and thereby how much money can be spent on football!
2. Whether the football side of the business is running at a profit or a loss

Better Example of Chart of Accounts

Now let's see how much better this same Profit and Loss Statement would have looked if a better Chart of Accounts had been followed

Basically, this version of the Profit and Loss statement is the same as the previous (bad) example but is much more concise in the number of accounts in the chart of accounts.

As a result, the report is easier to read and more useful as a management tool.

Chart of Accounts Template
for Football Club (Incorporated Association)

The suggested abbreviations may assist you in labelling columns in your journals.