Question

imagine you start a company and you are the only sole propietor, explain the chart of accounts you plan to use in your company and why, and the internal controls you would set up for your company and why

Answer 1

Chart of account

a chart of accounts is a listing which is divided into Balance Sheet accounts and the Profit & Loss accounts. All transactions for the accounting of any business, whether large or small are being recorded in the chart of accounts using names and unique numbers in each section. Simply put, it contains the accounts’ names, brief descriptions and identification codes.

Typical accounts found in the chart of accounts are:

Assets:

• Cash (main checking account)

• Cash (payroll account)

• Petty Cash

• Marketable Securities

• Accounts Receivable

• Allowance for Doubtful Accounts (contra account)

• Prepaid Expenses

• Inventory

• Fixed Assets

• Accumulated Depreciation (contra account)

• Other Assets

Liabilities:

• Accounts Payable

• Accrued Liabilities

• Taxes Payable

• Wages Payable

• Notes Payable

Stockholders' Equity:

• Common Stock

• Preferred Stock

• Retained Earnings

Revenue:

• Revenue

• Sales returns and allowances (contra account)

Expenses:

• Cost of Goods Sold

• Advertising Expense

• Bank Fees

• Depreciation Expense

• Payroll Tax Expense

• Rent Expense

• Supplies Expense

• Utilities Expense

• Wages Expense

• Other Expenses

Why chart of account Important

A chart of accounts is important because its system is designed to segregate expenditures, revenue, assets and liabilities which makes it easier for businesses to understand the company’s financial health. Being known as the backbone of every company’s whole bookkeeping system, a chart of accounts is an excellent way that you can easily manage and report key financial information about your business

Internal Control

Internal controls play a critical role in companies, because internal controls establish safeguards to an organization’s assets and minimize the opportunities of committing fraud and allowing errors to go undetected in an organization’s daily operations.

Why Important

The Importance of Internal Controls in Accounting

1. Internal Controls help to understand and mitigate risks.

2. Internal Controls help to address financial statement assertions.

3. Internal Controls help to prevent and detect fraud.

4. Internal controls help to prevent misstatement of financial statements.

5. Internal controls help to establish company practices