Accounting Fundamentals Certification (AFC) 2025 – 400 Free Practice Questions to Pass the Exam

A chart of accounts is structured in a way to provide a systematic and organized framework for recording financial transactions. It typically begins with asset accounts because these accounts represent resources owned by a business that have future economic value.

The asset category includes items such as cash, accounts receivable, inventory, and property, which are all foundational to a company's operations and financial position. Starting with asset accounts reflects the principle that businesses first track what they own before considering how those assets are financed through debts (liabilities) or investments (equity). This organizational structure helps in preparing financial statements, as it flows naturally into how the net worth of a company is assessed by looking at its assets, liabilities, and equity.

While liability, equity, and revenue accounts are crucial for understanding a business's financial health, they are typically recorded after assets in the chart of accounts. This order helps in delineating what the company owns first, which is vital for effective financial analysis and reporting.