Oil & Gas Accounting 101 – Chart of Accounts
Accounting for Oil & Gas requires a good set of accounts which are used to keep track of all accounting activities. This list of accounts is called the “Chart of Accounts” and will be every account needed for oil & gas operations accounting. There are two main sections of the chart of accounts, which are, Balance Sheet accounts and Income Statement or Profit & Loss accounts.
Balance Sheet accounts consist of categories such as Assets, Liabilities and Equity. Assets are items of value owned by the company. Liabilities are obligations of the company to transfer something of value, like an Asset, to another party. Equity is the value of the assets contributed by the owners of the company.
Income Statement accounts consist of categories such as Revenue, Cost of Goods Sold and Expenses. Revenues are the result of the sale of production, oil & gas, from the wells. Revenues can also result from services provided or the gains on equipment sold. Cost of Goods Sold are the costs related to the sales of production or services provided. Expenses are the costs incurred in order to operate the wells and company.
The accounts in the chart of accounts are crucial to good accounting. For every transaction in your accounting system, one account will be debited and one account will be credited. This keeps the accounting system in balance. For example, when you pay your telephone bill, you will take money from your cash account (credit) to pay the bill and you’ll recognize the telephone expense by debiting the telephone expense account for the same amount.
The chart of accounts is the heart of the accounting system. Every transaction entered has to be tagged with an account so it knows where to post. Once the accounts are set up. They can be used to build the accounting system.
Source: SherWare Blog