Question

Describe some of the problems that might arise from a failure to maintain and update an existing Chart of Accounts.

Answer 1

Chart of accounts is a listing of various accounts of the general ledger; whenever a new entry is entered into the system a new account is added to the chart of accounts. It includes accounting of all the aspects. A COA, which lists the names of the accounts that a company has identified and made available for recording transactions in its general ledger, establishes the level of detail tracked in a record-keeping system. Typically, a COA contains the accounts’ names, brief descriptions and identification codes.
In practice, the COA serves as the foundation for a company’s financial record keeping system. It provides a logical structure that facilitates the addition of new accounts and deletion of old accounts.
Within the COA, accounts will be typically listed in order of their appearance in the financial statements. Typically, Balance sheet accounts are listed first followed by the income statement accounts.