What is a Three-Digit Chart of Accounts?

Three-Digit Chart of Accounts

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Three-Digit Chart of Accounts

A Chart of Accounts (COA) is a listing of financial accounts used in the general ledger of an organization to organize its financial transactions. The structure and length of the account numbering in a COA can vary depending on the complexity and size of an organization.

A three-digit Chart of Accounts means that each account in the COA is represented by a three-digit number. The use of three digits allows for categorization and division of accounts, but at a high level. Larger organizations with more complex financial activities might use a longer numbering system to capture more categories and subcategories of accounts.

Example of a Three-Digit Chart of Accounts

Let’s create a fictitious example using a small bakery business and a three-digit Chart of Accounts.

Bakery Biz: Three-Digit Chart of Accounts:

In this example, our fictitious bakery business has a basic three-digit Chart of Accounts to organize its financial transactions. The bakery tracks its assets, including current items like cash and inventory and long-term assets like equipment. It also keeps tabs on its debts, both short-term and long-term. The bakery has various revenue streams, like bread, pastries, and custom cakes. Finally, it tracks expenses associated with producing goods and running the business.

The three-digit structure allows for a broad categorization, suitable for a small business. As “Bakery Biz” grows, it may need to expand its COA to accommodate more detailed or additional accounts.

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