The term “fintech” is commonly used to refer to technology adapted for finance that can improve, modernize, digitize, or undermine traditional finance services. Businesses mostly utilize Fintech to process payments, perform e-commerce, and handle accounting. This article explores the importance of the Chart of Accounts (COA) for the Fintech Industry and how Fintech is changing traditional finance services.
The Chart of Accounts (COA) is a financial management tool that is an internal part of accounting. It includes all of the accounts that a business currently manages. The COA classifies, organizes, and combines the accounts mentioned above as needed to enable tracking and reporting. All assets, liabilities, equity, income, and costs are recorded in the COA.
COA should categorize information in the most understandable way possible. Because the Chart of Account feeds financial accounts, the fundamental advantage of a well-organized COA is reliable reporting. As a consequence, companies may create sound expansion strategies. They determine when it is appropriate to search for fresh investments. Also, they get a more comprehensive picture of how their operations are faring, thanks to the financial insights provided by such reporting.
Fintech has become an absolute legend, especially with the advent of the Covid-19 pandemic has forced a shift towards digitalization. Fintech has made it feasible to do daily chores like check deposits, money transfers between accounts, bill payments, and financial assistance applications more effectively. Additionally, Fintech enables peer-to-peer lending and cryptocurrency exchanges.
Fintech may be perplexing due to its enormous diversity of tools, platforms, and services. Fintech is used to improve or simplify financial services and processes. Fintech combines the
words “financial” and “technology.” The term refers to a rapidly growing industry that helps consumers and businesses in numerous ways. Fintech has many applications, ranging from cryptocurrency and investing apps to mobile banking and insurance.
Fintech Banking: What Is It?
Banks use Fintech for consumer-facing solutions. You utilized the app to check your balance and back-end actions such as tracking account activity in the background. Banks operate Fintech to underwrite loans as well. Furthermore, Fintech enables customers to access various bank services, such as paying for transactions using a smartphone and receiving investing advice on their computers.
Fintech firms effectively incorporate technology into the the traditional finance sector, making conventional financial businesses safer, faster and more effective. Fintech is one of the fastest-growing digital fields, with companies dabbling with practically every facet of finance, from transactions and loans to credit evaluation and stock trading.
Effect of Fintech:
Fintech impacts practically every market, including geography and business strategies. The traditional financial service providers worldwide, mostly banks and credit unions, serve three primary purposes:
- They retain cash on hand, as well as deposits and a variety of investment choices.
- They make both secured (such as mortgages) and unsecured loans (like student lines)
How to set up a Chart of Accounts
As a fintech company, having a comprehensive Chart of Accounts (COA) to keep track of all financial transactions is crucial. The COA must record every transaction, including invoices and office supply purchases. Each performance in the COA typically correlates to two financial statements: the income statement and the balance sheet.
Balance Sheet Accounts
This section lists every valuable resource your business owns, including inventory, property, machinery, and accounts receivable. The following are the asset accounts that you should include in your COA:
- Short-term Investments
- Accounts Receivable
- Allowance for Doubtful Accounts
- Accrued Revenues/Receivables
- Prepaid Expenses
- Long-term Investments
- Furniture and Fixtures
- Accumulated Depreciation (a contra-asset account)
These accounts appear after the asset accounts in an organization’s balance sheet, accounting records, and chart of reports. In the general ledger, liability accounts often have credit balances. Here are some of the liability accounts that you should include:
- Short-term Loans Payable
- Current Portion of Long-term Debt
- Accounts Payable
- Accrued Expenses
- Unearned or Deferred Revenues
- Installment Loans Payable
- Mortgage Loans Payable
Equity is the the sum provided by a company’s owners or shareholders for the initial launch and ongoing operation of a company. The following are some of the equity accounts that you should include in your COA:
- Common Stock
- Preferred Stock
- Additional Paid-in Capital
- Contributes Surplus
- Retained Earnings
Income Statement Accounts
The accounts in the general ledger utilized by a company’s profit and loss statements are known as income statement accounts. Income Statements measure the income and costs of the company’s many product lines, departments, and divisions. A larger company may have a plethora of income statement accounts. Below are some of the most often-used income statement accounts:
- Sales discount
- Employee benefits
- Marketing expense
- Professional fees
- Income Taxes
A well-organized and detailed Chart of Accounts is essential for any fintech company. It provides a comprehensive overview of your company’s financial position and accurately records all financial transactions.
For Book Meeting:
In conclusion, a well-organized Chart of Accounts is crucial for any fintech company. It allows for better financial tracking, reporting, and decision-making. The fintech industry has revolutionized traditional finance services through technology, providing new ways for businesses and consumers to manage their finances. From mobile banking to investment apps, Fintech has made financial services more accessible, efficient, and convenient. Traditional financial institutions must adapt to the industry’s changing landscape and integrate technology to remain competitive. As the fintech industry continues to grow and evolve, we can expect more innovations that will further improve how we manage our finances.