Hello, I am just starting accounting for dummies and I probably haven't got there yet but I have a question about chart of accounts vs real accounts and transactions.
From what I am understanding Chart of Accounts aren't always actual accounts but ways of keeping track of different categories of expenses?
For example I learned about account numbering where they start 1-9 for assets liabilities etc., ie.
1000 checking
That seems logical because I'm very familiar with checking accounts but then there might be accounts such as Inventory, prepaid tax (fed/state), vehicles
I guess what I'm failing to understand is why you need a chart of account for Inventory, prepaid tax (fed/state), vehicles
Many banks allow you to download all of your transactions and these days they sometimes automatically categorize the expenses. So when you import it into a program such as microsoft money or quicken Taco Bell would come up as expense: dining out (or something similar). But even if they don't do that for you, you can do that on your own after you download it or when you manually enter them from receipts or monthly statement.
Now because of this it seems like I should have an account called Groceries/Take Out (expense other 8000? or expense accounts 6000). BUT to me it just seems reduntant. The money that paid for taco bell might have been A: Cash (withdrawl or petty cash) B: Check C: Credit card (which then would probably be paid off through checking account)
In summary it seems to me that CoA is just a way to track types of expenses but if you can flag an individual transaction as a certain type or category it seems like you could just run a report that would tell you the same thing. Rather than requiring a 2nd entry of that transaction into a chart of accounts.
I just wonder why this is the way it is. Or maybe I have it all wrong. Hoping to get some good conversation going about this.