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Preparing A Chart of Accounts

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Preparing A Chart of Accounts Drawbacks of the General Journal Cannot provide concise, easily accessible information about the changes to a single account What is ... – PowerPoint PPT presentation

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Title: Preparing A Chart of Accounts


1
Preparing A Chart of Accounts
2
Drawbacks of the General Journal
  • Cannot provide concise, easily accessible
    information about the changes to a single account
  • What is needed is a separate form, which
    summarizes all the changes to a single account
  • Each account has its own form

3
The Account Form
  • Contains the debit and credit components of the T
    Account
  • Also includes Debt and Credit Balance columns
  • These columns enable accountants to know the
    balance of the account at any point in time
  • Known as the balance-ruled account form

4
The Account Form
Account Name Account Name Account Name Account Name Account Name Account No Account No
Balance Balance
Date Post Ref. Debit Credit Debit Credit


  • The Balance columns enable companies to keep a
    running balance of each separate account

5
The Chart of Accounts
  • Ledger a group of accounts
  • General ledger the ledger that contains all the
    accounts required to prepare financial statements
  • Account Number Each account is assigned a
    specific number, which provides some information
    about the account
  • Numbering system depends on the size and the
    nature of the organizaiton

6
Assigning Account Numbers
  • File Maintenance the procedure for arranging
    accounts in a general ledger, assigning account
    numbers, and keeping records current
  • TechKnow Consulting assigns accounts 3 digit
    numbers (ABC)
  • The first number (A) corresponds to the general
    ledger division in which the account is located
  • If A1, then the account is an Asset
  • 2Liability, 3Owners Equity, 4 Revenue, and
    5Expense

7
Assigning Account Numbers
  • The last two digits (BC) indicate the location of
    each account with a general ledger division
  • Accounts are number by 10s (B0)
  • Space is left between assigned account numbers,
    so that new accounts can be added

8
Assigning Account Numbers
  • Assets are listed by order of their liquidity
  • How readily they can be converted to cash
  • Cash, A/R, Supplies, Prepaid Insurance
  • A/R are ordered alphabetically using the first
    initial of a company customer and the first
    initial of the last name of an individual
    customer
  • For example Cash 110 A/R Stan Getz 120 A/R
    Musicland 130 Supplies 140

9
Assigning Account Numbers
  • All other items are listed alphabetically
  • A/P follows the same ordering rules as A/R
  • Alphabetized by the first initial of the last
    name of an individual vendor or the first initial
    of the name of company vendor
  • For example A/P Acme Supplies 210 A/P Abby
    Lincoln 220 Advertising Expense 510 Misc.
    Expense 520

10
Assigning New Account Numbers
  • If an account is no longer needed, it is removed
    from the chart of accounts and the general ledger
  • If a new expense account title falls
    alphabetically between two existing accounts the
    new account number is between the two account
    numbers
  • For example 510 Advertising Expense
  • 515 Gasoline Expense
  • 520 Insurance Expense

11
Assigning New Account Numbers
  • When a new account is added at the end of a
    ledger division, the next number in the sequence
    of 10s is used.
  • For example
  • 550 Supplies Expense
  • 560 Utilities Expense
  • 570 Water Expense

12
Opening an Account
  • Each account has its own general ledger account
  • An account is opened by writing the account title
    and account number on the heading of an account
    page

13
Opening A New Account
  • Cash

110
Account Name Account Name Account Name Account Name Account Name Account No Account No
Balance Balance
Date Post Ref. Debit Credit Debit Credit


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