The chart of accounts is a “system of accounting records developed by every organization to be compatible with its particular financial structure, and in agreement with the amount of detail required in its financial statements” (BusinessDictionary.com, 2015a). When a business spends or receives money for items, a chart of accounts (“COA”) is used to define and classify said items. In other words, COAs are used to segregate the finances of a business. For the purpose of this essay question, there are two types of businesses: merchandising businesses and service businesses.
A merchandising business is a commercial entity that purchases finished goods for the purpose of resale for profit (BusinessDictionary.com, 2015b). Conversely, a service …show more content…
Additional COA disadvantages include not enough detail in revenue and cost of goods sold categories (merchandising companies), no logic in assigning ledger account numbers, inadequate titles on ledger account descriptions, poor detail in chart of accounts, no standard COA for different companies, companies failing to use a numbering system for its COA, and businesses failing to leave gaps in the COA numbering system to allow additional accounts (Adir, n.d.). Despite the disadvantages, businesses should employ COAs as the advantages outweigh the disadvantages. To reduce the impact of the disadvantages, companies employ accounts specific to the business, accounts should be flexible yet consistent, only one set of accounts should be used across the company(s), companies should utilize a manageable list of accounts and discontinue the use of obsolete accounts, lastly business should regularly review its COA
A merchandising business is a commercial entity that purchases finished goods for the purpose of resale for profit (BusinessDictionary.com, 2015b). Conversely, a service …show more content…
Additional COA disadvantages include not enough detail in revenue and cost of goods sold categories (merchandising companies), no logic in assigning ledger account numbers, inadequate titles on ledger account descriptions, poor detail in chart of accounts, no standard COA for different companies, companies failing to use a numbering system for its COA, and businesses failing to leave gaps in the COA numbering system to allow additional accounts (Adir, n.d.). Despite the disadvantages, businesses should employ COAs as the advantages outweigh the disadvantages. To reduce the impact of the disadvantages, companies employ accounts specific to the business, accounts should be flexible yet consistent, only one set of accounts should be used across the company(s), companies should utilize a manageable list of accounts and discontinue the use of obsolete accounts, lastly business should regularly review its COA