Question

Using the list of accounts below, construct a chart of accounts for a merchandising business that rents out a portion of its building, and assign account numbers and arranging the accounts in balance sheet and income statement order (“1” for assets, and so on). Each account number should have three digits. Contra accounts should be designated with a decimal of the account (100.1 for contra of account 100). Assets and liabilities should be in order of liquidity, expenses should be in alphabetical order.

Accounts Payable		Equipment		Sales
Accounts Receivable		Interest Expense		Supplies Expense
Accumulated Depr.—Equip.		Land		Unearned Revenue
Advertising Expense		Merchandise Inventory		Utilities Expense
Capital, Owner		Notes Payable
Cash		Office Supplies
Cost of Merchandise Sold		Rent Revenue
Depreciation Expense-Equipment		Salaries Expense
Drawing, Owner		Salaries Payable

Acc. No Description

Answer 1

Income Statement Chart:

Account Number	Description
100	Sales
101	Rent Revenue
200	Advertising Expense
201	Cost of Merchandise Sold
202	Depreciation Expense-Equipment
203	Interest Expense
204	Salaries Expense
205	Supplies Expense
206	Utilities Expense

Note- Income items have been assigned with account number from 100 onward and expense items are assigned from account number 200 onward.

Balance Sheet Items:

Account Number	Description
Assets
300	Cash
301	Office Supplies
302	Merchandise Inventory
303	Accounts Receivable
304	Equipment
304.1	Accumulated Depr.—Equip.
305	Land
Liabilities
400	Account Payable
401	Notes Payable
402	Salaries Payable
­403	Unearned Revenue
404	Capital, Owner
404.1	Drawing, Owner

Notes-

1.Accumulated Depreciation is an offsetting position of assets (here, equipment) on their book value.Hence it is a contra entry.

2. Drawings are the withdrawal of capital by owner. Hence it is a contra entry.

3. Assets and liabilities have been arranged from the most liquid to the least liquid in order.