What is the difference between Chart of Accounts and Ledger?
What is the difference between Chart of Accounts and Ledger?
The short answer is that a ledger always belongs to one and only one company whereas a chart of accounts may be used by more than one company in common.
Think of a ledger as an old fashioned physical book of accounts. Each account starts on a separate page and is a list of transactions. All the accounts in the book (“ledger”) belong to one company. Therefore a ledger is a set of similar accounts for ONE company. The spine of the ledger (book) is labeled “Clients Ledger for 2012 for Company X”
Think of a chart of accounts as a piece of paper with a list of account names and numbers. It is kept separately from the ledgers as a reference document since it applies to more than one year and possibly even to more than one company.
- Account = LIST OF TRANSACTIONS (one or more pages with opening and closing balance)
- Ledger = A BOOK OF ACCOUNTS (can be very large)
- Chart = A LIST OF ACCOUNTS (names and numbers)
Clearly, each account and ledger relate to one specific company whereas a chart of accounts could be applicable for more than one company- if they have common clients, supplier etc.
Using the same chart of accounts for the ledgers of more than one company provides some useful benefits
- Adding new accounts and removing old accounts can be done once and is effective for all companies.
- Consolidated Finance Statements can be obtained. For example “Consolidated Aged Balances Report”
- Tabular Finance Statements can be obtained. For example trial balance of clients and suppliers showing each company in a separate column with grand total and/or arbitrary totals of any desired sub-grouping of companies.
Be mindful that there are three meanings to the word Account.
An account = List of Transactions.
An account = Account name and number/code E.g Al Habtoor - HABT.
An account = a restricted list of transactions. E.g an account of transactions for client HABT in the period 7/2018.
