Zikpro - Chart of Acounts
The Chart of Accounts (CoA) is essentially a masterplan of all the accounts within your business.
Consider the Chart of Accounts to be the foundation of your business's whole accounting system. It functions similarly to a blueprint or master list that contains all of the accounts used to monitor the inflow and outflow of funds for your company. Because it uses the double-entry accounting system, each transaction has a matching credit and debit. This system, which is widely used worldwide, guarantees balance and accuracy in your financial records.
The CoA is displayed in a tree structure in ERPNext:
Groups (e.g. Assets, Liabilities, Income) are similar to folders or categories.
The actual accounts—such as bank accounts, sales, and office expenses—where transactions are recorded are called ledgers.
A default chart of accounts, typically based on national standards, is included with every company created in ERPNext. However, you can completely alter it to fit your company's requirements or local tax regulations.
1. What makes the Chart of Accounts significant?
It makes your accounting more organised and lucid. The CoA assists you in answering important questions by clearly arranging your accounts, such as:
1. How much is my company worth?
Your CoA assists in determining your net worth by subtracting liabilities from total assets.
2. What is the amount I owe?
You can monitor how much debt you have taken on and how much you still owe by checking your liabilities accounts (such as loans or payables).
3. Am I turning a profit? How much tax do I have to pay?
All of your income and expense accounts are tracked by CoA. This helps you determine how much income tax you might owe and whether your business is profitable.
4. How are sales going for me?
You can track all of your sales under income accounts, whether they are broken down by product, region, or any other way you choose.
5. What's happening to my money?
You can see exactly what your money is being used for under Expenses, including marketing, utilities, rent, and salaries.
2. For Business Owners
As a business owner, knowing your chart of accounts enables you to:
Make more informed business decisions by using actual financial data.
Maintain adherence to legal and tax obligations
Early detection of trends and issues (such as declining sales or rising costs)
Provide lenders or investors with clear, well-structured financial reports.
To access the Chart of Accounts, go to:
3. How to Create or Modify Accounts
To get you started, ERPNext provides a simple Chart of Accounts (CoA) structure. However, since every business is unique, you can add, remove, or modify these accounts to suit the requirements of your business. With the Chart of Accounts Importer Tool, you can even bulk upload an entire CoA; however, note that this will replace your current chart.
3.1. Step-by-Step
To view the Chart of Accounts, go to Accounting > Chart of Accounts.
Your account structure will be displayed in a tree view.
To view or add sub-accounts, expand a group.
To see a group's sub-accounts, click the arrow next to it (such as Expenses or Assets).
Options like "Add Child," "Edit," and "Delete" will be visible to you. Child accounts can only be created by "Group" accounts.
You can add sub-accounts under a group account, which functions similarly to a folder.
Real transactions take place in a ledger account; nothing can be added to it.
Create a child account: A form allowing you to specify the new account will open when you select "Add Child" under a group.
What to Enter for the Account Name and Number? Name your new account something obvious, such as "Office Rent" or "Phone Charges."
To keep things organised, you can also assign an account number.
Is Group (Checkbox): If the account will have sub-accounts under it, check this box. Check this box, for instance, if you create an account named "Marketing Expenses" and wish to add sub-accounts like "Ads," "Design," and "Events."
Type of Accounts
In order for ERPNext to handle the account correctly in reports and computations, select the appropriate type. Among the examples are:
Cost
Revenue
Unchangeable Asset
Present-Day Obligation
Receivable, etc.
Select the relevant currency here if this account will be used in a foreign one. For instance, choose USD if your company's primary currency is PKR but a bank account is in USD.
Once everything is filled out, click Create New, and the account will be added to the group of your choice.
3.2. Typical Account Examples
1. Under Expenses
Travel Costs
Pay and Salaries
Internet or phone fees
Supplies for the Office
2. Under Current Debts
Payable VAT
Payable Sales Tax
Equity of Shareholders
Payable Loans
3. Under Income
Sales of Products
Revenue from Services
Fees for Consultation
4. Under Fixed Assets
Building for Offices
Equipment and Computers
Fixtures and Furnishings
Automobiles
4. Account Types
4.1 Balance Sheet Accounts
These are Assets (what the business has) and Liabilities (what the business owes). They show your company's value at a moment in time. The balance sheet has this rule: Assets = Liabilities + Owner's Equity
If you're not familiar with accounting, this may sound strange. But all investments to purchase company assets are from owners or lenders and thus are liabilities.
When a business shuts down, it will need to dispose of all of its assets and pay off all of its liabilities, including owners' investments.
There are two primary sections:
1. Assets: These are things your company owns
For instance:
Your bank account's balance
Office furnishings
Real estate
Money that clients still owe you (known as accounts receivable)
2. Liabilities: These are the debts owed by your company to third parties.
For instance:
Business loans
Accounts Payable are supplier invoices that you have not yet paid.
Owner's equity is the money that owners have invested.
That simply indicates that everything the company owns was either a gift from someone (a loan or investment) or something the company has earned over time.
Additionally, this data persists rather than being reset annually. Therefore, it will still appear this year if you had PKR 2 million in the bank last year and didn't touch it.
4.2. Profit and Loss Account
Consider a video clip that illustrates the performance of your company over a period of time, such as the last month, quarter, or year, rather than a snapshot. That is your P&L (profit and loss) statement.
Two things are revealed in this section:
How much money you made (from sales of goods or services, for example)
How much you spent on things like marketing, internet bills, rent, salaries, etc.
Ultimately, it indicates if you were profitable or not.
For instance: Suppose you made a profit of PKR 200,000 in April after earning PKR 500,000 but spending PKR 300,000.
The catch is that, in contrast to the balance sheet, these figures change annually. Your income and expenses therefore return to zero at the beginning of the next fiscal year, and you begin anew.
You don't need to do any calculations yourself because ERPNext provides you with a profit and loss report, making this incredibly simple. You only need to choose the time frame to see your earnings and expenses.
4.3. A Quick Example
Suppose you are the owner of a small digital agency.
You may notice the following on your balance sheet:
Bank: 1,200,000 PKR
Laptop (Asset): PKR 200,000
Loan Payable: PKR 300,000
Owner's Equity: PKR 1,100,000
On your monthly P&L statement:
Revenue: PKR 400,000
Costs (software, salaries, etc.): PKR 250,000
Profit margin: PKR 150,000
That is the difference between your current situation (P&L) and your balance sheet.
4.4. Groups and Ledgers
Group and Ledger accounts are the two primary types of accounts in ERPNext. While ledgers are the leaf nodes of your chart and cannot have more accounts in them, groups can have subgroups and ledgers within them. Only ledger accounts, not groups, may be the subject of accounting transactions.
In an accounting book, a "ledger" is a page where entries are made. Typically, each account (such as a supplier or customer) has its own ledger.
4.5. Other Account Types
ERPNext allows you to define account types for more control in certain cases. These do not alter the chart structure but assist in choosing proper accounts when making transactions.
Some key types:
Accumulated Depreciation: This account keeps track of an asset's overall depreciation over time. Over time, it lowers the asset's value on the balance sheet.
Assets Received But Not Billed: Used when an asset (such as equipment) has been delivered but the supplier's bill has not yet been received. This records outstanding expenses that will be settled at a later time.
Cash or Bank: These are accounts for your bank accounts or cash on hand. Examples include petty cash, company bank accounts, and cash.
Chargeable: Used to document additional fees associated with a transaction, such as handling or delivery charges. Usually, these are included in the item's selling price.
Capital Work in Progress: Ongoing projects that are not yet finished or in use are handled by this account. The money is transferred to Fixed Assets after the project is completed.
Cost of Goods Sold: COGS keeps track of how much it costs your company to make or buy the products you sell.It is subtracted from sales in order to determine your gross profit.
Depreciation: This documents the yearly decline in your fixed assets' value. It shows the use or deterioration of assets like machinery or buildings.
Equity: The owner's or shareholders' investment in the company is represented by equity. Retained earnings or losses from prior years are also included.
Expenses Included in Asset Valuation: Used to cover additional expenses that are directly associated with purchasing an asset, such as shipping or installation. The total value of the asset is increased by these.
Fixed Assets: long-term assets that belong to the business, such as furniture, cars, or buildings. They are used in day-to-day operations and are not intended for resale.
Income Account: Any revenue your company receives from sales, services, or other sources is recorded in these accounts. Sales of products and consulting fees are two examples.
Payable: Represents the amount of money you owe vendors or suppliers for the products and services you have purchased. Includes outstanding expenses and unpaid bills as well.
Receivable: Your clients owe you this money. It assists in managing customer collections and keeps track of all outstanding invoices.
Round Off: Used to handle small rounding errors in bills or invoices. For instance, you could round a total to 1,000 if it equals 999.87.
Stock/Stock Adjustment: Keeps track of the number and worth of items in your stock. Also used for stock adjustments resulting from errors, loss, or damage.
Tax: Used for a variety of tax accounts, including sales tax, GST, and VAT. It facilitates filing returns and keeping track of taxes paid or collected.
Temporary: When switching to ERPNext in the middle of a fiscal year, this short-term account is utilised. Up until the end of the year, it facilitates data transfer between ERPNext and your previous system.
4.6. Financial Reports
ERPNext allows you to make financial statements with ease:
1. Cash Flow Report: Think of this as your company's wallet; it shows where your money comes from and where it goes. It tells you how much money you truly have in cash or in the bank. This report can help you figure out if your business has enough money to pay its daily bills, wages, and other costs.
2. Profit and Loss Report: This report shows your company's income and expenses over a set period of time, such a month or a year. It's like a scorecard. It tells you whether your business made money or lost money. It's useful for finding out where you might be spending too much and whether your efforts are paying off.
3. Balance Sheet Report: This is like a checkup for your business. It shows your company's assets (money, property, or equipment) and liabilities (loans or obligations that are still owed) as of a certain date. It lets you figure out how much your business is worth and how stable its finances are.
4.7. Account Numbering
A standard Chart of Accounts is organized according to a numerical system. Each major category will begin with a certain number, and then the sub-categories within that major category will all begin with the same number. For example, if assets are classified by numbers starting with the digit 1000, then cash accounts might be labeled 1100, bank accounts might be labeled 1200, accounts receivable might be labeled 1300, and so on. A gap between account numbers is generally maintained for adding accounts in the future.
You can assign a number while creating an account from Chart of Accounts page. You can also edit a number from account record, by clicking Update Account Name / Number button. On updating account number, the system renames the account name automatically to embed the number in the account name.
5. Related Topics
Opening Balance
Account Settings
Inter-Company Journal Entry
Accounting Reports
Multi-Currency Accounting