Introduction to Accounting Introduction to Accounting 120120

Chapter 5: Chart of

Accounts

RemindersReminders

•Be sure that you have completed U5A2 on ClassMarker.com (as well as the Income Statement practical portion of U5A2).

•Please check Engrade.ca to ensure all marks look correct and see or email me with any discrepancies.

In Today’s Class..In Today’s Class..

•We will learn about the “Chart of Accounts”.

•Following our Essential Learnings we will:– Identify users and uses of accounting– Describe how technology is changing

accounting

• After this presentation and discussion we will have a chance to check your knowledge with a brief review.

• We will also go back and do a quick T-Account and Trial Balance Assignment.

IntroductionIntroduction

• It is customary to number each account in the ledger. Numbers are assigned based on classification:– Assets: 100-199– Liabilities: 200-299– Owner's Equity     

•Capital/Drawings: 300-399     •Revenue: 400-499     

IntroductionIntroduction

• For larger companies, it is necessary to increase the span by moving into higher numbers:– Assets 1000-1999– Liabilities 2000-2999

• Owner's Equity     – Capital/Drawings 3000-3999     – Revenue 4000-4999    – Expenses 5000-5999

 Chart of Accounts (Continued)

•A chart of accounts is a list of the ledger accounts and their numbers, arranged in ledger order.

•When accounts are numbered, the numbers are assigned in ascending order, maintaining other accounting regulations. For example, assets are listed in order of liquidity and numbered, beginning with Bank, as 100 or 101.

 Chart of Accounts (Continued)

• Examine the following chart of accounts:

Chart of Accounts-Assets

• Examine the asset section of a chart of accounts:

• Note:– Assets are in order of liquidity. – Accounts are numbered within 100-199. – Account numbers are in ascending order but

spaced to accommodate any addition of new accounts.

Chart of Accounts-Liabilities

• Examine the liability section of the chart of accounts:

• Note:– Liabilities are listed in order of retiring debt. – Accounts are numbered within 200-299. – Account numbers in ascending order but with

spaces to accommodate the addition of more accounts

Chart of Accounts-Owner's Equity

• Examine the owner's equity section of the chart of accounts:

• Note:– Capital is listed before Drawings. – Capital accounts are listed within 300-399. – For this company, only one revenue account is used. If there

were more, accounts would be listed in alphabetical order. – Revenue is within 400-499. – Expenses are listed in alphabetical order. – Expenses are within 500-599. – Account numbers are in ascending order but with spaces to

accommodate the addition of more accounts.

The Trial Balance

• Neither the preparation nor the purpose of the trial balance changes with the induction of the expanded equity section and the chart of accounts; however, some companies choose to include the account number, as well as the account name, on the trial balance, but it is not necessary.

• The trial balance remains the instrument used to verify the balance of the ledger. The new equity accounts are listed in the appropriate order with their balances in the appropriate debit/credit column.

The Trial Balance

The Trial Balance (Continued)

Checking Your Knowledge

• Please take a moment to check your knowledge by going to ClassMarker.com– Complete the following reviews:

• “The Electronic Income Statement” (Using yesterday’s PPT)

• “Chart of Accounts” (Using today’s PPT)

• Once you have done this, please complete Exercise #6 on page 117 of the textbook in groups. Create a T-Accounts sheet and a trial balance sheet. Open “Page 117, #6,T-Accounts and Trial Balance.xls” off the O:\Binet drive.