Explanation of the Topic...
Chart of Accounts
|Part 1||Introduction to Chart of Accounts, Sample Chart of Accounts for a Large Corporation|
|Part 2||Sample Chart of Accounts for a Small Company, At Least Two Accounts for Every Transaction|
This is a partial listing of another sample chart of accounts. Note that each account is assigned a three-digit number followed by the account name. The first digit of the number signifies if it is an asset, liability, etc. For example, if the first digit is a "1" it is an asset, if the first digit is a "3" it is a revenue account, etc. The company decided to include a column to indicate whether a debit or credit will increase the amount in the account. This sample chart of accounts also includes a column containing a description of each account in order to assist in the selection of the most appropriate account.
|101||Cash||Debit||Checking account balance (as shown in company records), currency, coins, checks received from customers but not yet deposited.|
|120||Accounts Receivable||Debit||Amounts owed to the company for services performed or products sold but not yet paid for.|
|140||Merchandise Inventory||Debit||Cost of merchandise purchased but has not yet been sold.|
|150||Supplies||Debit||Cost of supplies that have not yet been used. Supplies that have been used are recorded in Supplies Expense.|
|160||Prepaid Insurance||Debit||Cost of insurance that is paid in advance and includes a future accounting period.|
|170||Land||Debit||Cost to acquire and prepare land for use by the company.|
|175||Buildings||Debit||Cost to purchase or construct buildings for use by the company.|
Depreciation - Buildings
|Credit||Amount of the buildings' cost that has been allocated to Depreciation Expense since the time the building was acquired.|
|180||Equipment||Debit||Cost to acquire and prepare equipment for use by the company.|
Depreciation - Equipment
|Credit||Amount of equipment's cost that has been allocated to Depreciation Expense since the time the equipment was acquired.|
|210||Notes Payable||Credit||The amount of principal due on a formal written promise to pay. Loans from banks are included in this account.|
|215||Accounts Payable||Credit||Amount owed to suppliers who provided goods and services to the company but did not require immediate payment in cash.|
|220||Wages Payable||Credit||Amount owed to employees for hours worked but not yet paid.|
|230||Interest Payable||Credit||Amount owed for interest on Notes Payable up until the date of the balance sheet. This is computed by multiplying the amount of the note times the effective interest rate times the time period.|
|240||Unearned Revenues||Credit||Amounts received in advance of delivering goods or providing services. When the goods are delivered or services are provided, this liability amount decreases.|
|250||Mortgage Loan Payable||Credit||A formal loan that involves a lien on real estate until the loan is repaid.|
|290||Mary Smith, Capital||Credit||Amount the owner invested in the company (through cash or other assets) plus earnings of the company not withdrawn by the owner.|
|295||Mary Smith, Drawing||Debit||Amount that the owner of the sole proprietorship has withdrawn for personal use during the current accounting year. At the end of the year, the amount in this account will be transferred into Mary Smith, Capital (account 290).|
|310||Service Revenues||Credit||Amounts earned from providing services to clients, either for cash or on credit. When a service is provided on credit, both this account and Accounts Receivable will increase. When a service is provided for immediate cash, both this account and Cash will increase.|
|500||Salaries Expense||Debit||Expenses incurred for the work performed by salaried employees during the accounting period. These employees normally receive a fixed amount on a weekly, monthly, or annual basis.|
|510||Wages Expense||Debit||Expenses incurred for the work performed by non-salaried employees during the accounting period. These employees receive an hourly rate of pay.|
|540||Supplies Expense||Debit||Cost of supplies used up during the accounting period.|
|560||Rent Expense||Debit||Cost of occupying rented facilities during the accounting period.|
|570||Utilities Expense||Debit||Costs for electricity, heat, water, and sewer that were used during the accounting period.|
|576||Telephone Expense||Debit||Cost of telephone used during the current accounting period.|
|610||Advertising Expense||Debit||Costs incurred by the company during the accounting period for ads, promotions, and other selling and expenses (other than salaries).|
|750||Depreciation Expense||Debit||Cost of long-term assets allocated to expense during the current accounting period.|
|810||Interest Revenues||Credit||Interest and dividends earned on bank accounts, investments or notes receivable. This account is increased when the interest is earned and either Cash or Interest Receivable is also increased.|
|910||Gain on Sale of Assets||Credit||Occurs when the company sells one of its assets (other than inventory) for more than the asset's book value.|
|960||Loss on Sale of Assets||Debit||Occurs when the company sells one of its assets (other than inventory) for less than the asset's book value.|
Accounting software frequently includes sample charts of accounts for various types of businesses. It is expected that a company will expand and/or modify these sample charts of accounts so that the specific needs of the company are met. Once a business is up and running and transactions are routinely being recorded, the company may add more accounts or delete accounts that are never used.
The chart of accounts lists the accounts that are available for recording transactions. In keeping with the double-entry system of accounting, a minimum of two accounts is needed for every transaction—at least one account is debited and at least one account is credited.
When a transaction is entered into a company's accounting software, it is common for the software to prompt for only one account name—this is because the software is programmed to automatically assign one of the accounts. For example, when using accounting software to write a check, the software automatically reduces the asset account Cash and prompts you to designate the other account(s) such as Rent Expense, Advertising Expense, etc..
Some general rules about debiting and crediting the accounts are:
To learn more about debits and credits, go to Explanation of Debits & Credits and Drills for Debits & Credits. To learn more about the role of bookkeepers and accountants, go to our Accounting Career Center.
Because the material covered here is considered an introduction to this topic, many complexities have been omitted. You should always consult with an accounting professional for assistance with your own specific circumstances.
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