Revenue accounts capture and record the incomes that the business earns from selling its products and services. The main components of the income statement accounts include the revenue accounts and expense accounts. The numbering system of the owner’s equity account for a large company can continue from the liability accounts and start from 3000 to 3999. Some of the components of the owner’s equity accounts include common stock, preferred stock, and retained earnings. Owner’s equity measures how valuable the company is to the shareholders of the company. The number system for each liability account can start from 2000 and use a sequence that is easy to follow and compare in different accounting periods.Įquity represents the value that is left in the business after deducting all the liabilities from the assets. Liability accounts also follow the traditional balance sheet format by starting with the current liabilities, followed by long-term liabilities. Typically, liability accounts will include the word “payable” in their name and may include accounts payable, invoices payable, salaries payable, interest payable, etc. Liability accounts provide a list of categories for all the debts that the business owes its creditors. The numbering follows the traditional format of the balance sheet by starting with the current assets, followed by the fixed assets.
The account may include intangible assets (such as trademarks, patents, and software), current assets (such as cash on hand, accounts receivable, andĮach asset account can be numbered in a sequence such as 1000, 1020, 1040, 1060, etc. The asset account provides a list of all the categories of assets that the business owns. Balance sheet accounts comprise the following: Such accounts are required when creating a balance sheet for the business. Also, the numbering should be consistent to make it easier for management to roll up information of the company from one period to the next.Įxample: A large business numbering systemĮach of the accounts in the chart of accounts corresponds to the two main financial statements, i.e., the balance sheet and income statement. Groups of numbers are assigned to each of the five main categories, while blank numbers are left at the end to allow for additional accounts to be added in the future. Small businesses commonly use three-digit numbers, while large businesses use four-digit numbers to allow room for additional numbers as the business grows. Numbering also makes it easy to record a transaction. Typically, when listing accounts in the chart of accounts, you should use a numbering system for easy identification. For example, the taxi business will include a fuel expense account that is not common to all businesses, but it will leave out an inventory account since the taxi business is a service business that does not hold stock. For example, a taxi business will include certain accounts that are specific to the taxi business, in addition to the general accounts that are common to all businesses. When setting up a chart of accounts, typically, the accounts that are listed will depend on the nature of the business. The accounts in the income statement comprise revenues and expenses, and these accounts are also broken down further into sub-categories. The balance sheet accounts comprise assets, liabilities, and shareholders equity, and the accounts are broken down further into various subcategories. The balance sheet accounts are listed first, followed by the accounts in the income statement. The chart of accounts provides the name of each account listed, a brief description, and identification codes that are specific to each account. The chart makes it easy to prepare information for evaluating the financial performance of the company at any given time. It provides a way to categorize all of the financial transactions that a company conducted during a specific accounting period.Ĭompanies often use the chart of accounts to organize their records by providing a complete list of all the accounts in the general ledger of the business. The chart of accounts is a tool that lists all the financial accounts included in the financial statements of a company. Updated FebruWhat is the Chart of Accounts?
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