Question

Describe some of the problems that might arise from a failure to maintain and update an existing Chart of Accounts. Discuss in 100–120 words.

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 of the business such as Assets, Liabilities, Revenue and Expenses.

The many problems related to the failure to maintain or updation of an existing chart of accounts include the following:

1. Creation of too many accounts: When entries are added to a system many accounts are created which are not needed and which actually create confusion while finalizing the accounts.

2. Insufficient details in the Ledgers: Sometimes many ledgers are formed for the same item for example having more than one inventory account and they create a lot of trouble while reconciling the accounts into one control account.

3. Accounts not aligning with each other: Sometimes when too many accounts are formed and not updated or maintained properly then there are many accounts which do not align with each other; for example the Sales do not align with the cost of goods sold or there is problem in finding the detailed reasons for an entry passed into the accounts.