Question

Research the internet and find information pertaining to creating a chart of accounts. What tips can you find and what accounts do you find present most often in a Chart of Accounts? What numbering system is used for the Chart of Accounts? Provide an example chart of accounts numbering scheme.

Answer 1

Solution:-

Information pertaining to creating a chart of accounts:-

Asset	Liability	Stockholders Equity	Revenue	Expense
Cash (main checking account)	Accounts Payable	Common Stock	Operating Revenue	Cost of Goods Sold
Cash (payroll account)	Notes Payable	Preferred Stock	Non Operating Revenue	Depreciation Expense
Petty Cash	Taxes Payable	Retained Earnings		Supplies Expense
Marketable Securities	Accrued Liabilities			Wages Expense
Accounts Receivable	Wages Payable
Prepaid Expenses
Inventory
Fixed Assets

Chart of A/c Numbering:-

The first type of numbering to determine for a chart of accounts involves their structure. This is the layout of an account number, and involves the following components:

Division code - This is typically a two-digit code that identifies a specific company division within a multi-division company. It is not used by a single-entity company. The code can be expanded to three digits if there are more than 99 subsidiaries.

Department code - This is usually a two-digit code that identifies a specific department within a company, such as the accounting, engineering, or production departments.

Account code - This is usually a three digit code that describes the account itself, such as fixed assets, revenue, or supplies expense.

For example, a multi-division company with several departments in each company would probably use chart of accounts numbering in this manner: xx-xx-xxx

As another example, a single-division company with multiple departments could dispense with the first two digits, and instead uses the following numbering scheme: xx-xxx

As a final example, a smaller business with no departments at all could just use the three digit code assigned to its accounts, which is: xxx

Once the coding structure is set, the numbering of accounts can take place. This is the three-digit coding referred to previously. A company can use any numbering system that it wants; there is no mandated approach. However, a common coding scheme is as follows:

Assets - Account codes 100-199

Liabilities - 200-299

Equity accounts - 300-399

Revenues - 400-499

Expenses - 500-599

As a complete example of the preceding outline of numbering, a parent company assigns the "03" designator to one of its subsidiaries, the "07" designator to the engineering department, and "550" to the travel and entertainment expense. This results in the following chart of accounts number:

03-07-550