Accounting 101: Chart of Accounts Flow and Standard Financial Reports

Whether you are new to accounting or never touched it, everything you do within any ERP has an impact on a business' financial flow. Brush up on some basics or learn something new!

Account Types and the Chart of Accounts 

Each account in your Chart of Accounts must have a Type assigned.

Each of these account types belongs to a broader category in the general accounting equation:

Assets + Expenses = Equity + Liabilities + Income 

Each account type has a normal balance type of debit or credit: 

Dividend, Expense, and Asset accounts usually have a Debit balance while Liability, Equity, and Revenue accounts usually have a Credit balance (DEALER) 

Check out this great article for more detailed information about account types in a standard chart of accounts.

Standard Financial Reports

Now let’s take a look at three important accounting reports you should be familiar with:

Balance Sheet 

In accounting, a balance sheet is a financial statement that reports a company's assets, liabilities, and equity at a specific point in time. It is a snapshot at a given moment.

• Balance sheet balances continue to accumulate across fiscal years 

Income Statement 

An income statement or profit & loss statement (P & L), on the other hand, is more like a motion picture, showing totals from this date to that date. 

• Income statement balances reverse (clear out) at the end of each fiscal year 

 Trial Balance

A trial balance is an accounting report showing the closing balances of all general ledger accounts at a point in time.

For example, if I were to run a trial balance report for a particular month (let's say Feb 2024), I will be looking at the sum of all activity in each account for Feb 2024 plus all of the activity that happened in those accounts prior to Feb 2024. 

• For balance sheet accounts, it will be the total or closing balance for the entire history of that account through Feb 2024 

• For income statement accounts (because remember from above, the Income statement accounts clear out at the end of each year), it will be the total or closing balance for Jan and Feb 2024 

• A trial balance will be in the format below when exported 

It is very important for the totals of the Debit & Credit columns to match.