Chart of accounts

The chart of accounts is listing of all the accounts in the general ledger; each
account accompanied by a reference number. To set up a chart of accounts; one
first needs to define the various accounts to be use by the businesses; Each
account should have a number to identify it. A chart of a accounts uses a
numbering system to organize the data. All the data on reports your print comes
out in numerical order. For very small businesses; three digits may suffice for the
account number; though more digits are highly desirable in order to allow for new
accounts to be added as business grows. With more digits, New accounts can be
added while maintaining the logical order. Complex businesses may have
thousands of accounts require longer account reference numbers. It is worthwhile
to put thought into assigning the account numbers in logical way (Block Code
Method, Group Code Method, Decimal Code Method,…), and to follow any specific
industry standards. An example of how the digits might be coded is shown in this
:list
Account Numbering (Block Code Method)
asset accounts 1000-1999
liability accounts 2000-2999
equity accounts 3000-4000
revenue accounts 4000-4999
cost of good sold 5000-5999
expense accounts 6000-6999
other revenue 7000-7999
other expense 8000-8999
By separating each account by several numbers, many accounts can be added
.between any two while maintaining the logical order
Cost accounting
Financial accounting is concerned with preparation of financial statements. It
provides information regarding profit or loss that the enterprise is making, and
also its financial position at a particular time. This information is helpful to the
management in order to control in general way the major funtions of the
business. It is the application of costing and cost accounting principles, methods
.and techniques to the science, art and practice of cost control
Scopes: cost ascertainment, cost accounting, cost control, budgetary control, cost
audit
Functions: to calculate the cost per unit for different products, provide
information for a correct analysis of cost, ascertain the profitability of each
.product, advise management on future expansion, policies of cost and products
Job Costing
Job costing is that form of specific order costing in which the cost of a
product/service is obtained by assigning costs to a distinct identifiable product or
.service
Job costing system is used to calculate costs to a distinct unit, job, batch or lot of
product or service. This system can be used in building construction, aircraft
.assembly, advertising agency, campaigns, accounting firms' audits etc
Purpose: to establish the profit or loss for each job, to valuate the WIP.
Advantages: it provides details for analysis of materials, wages and OVHs; it
provides info concerning the more profitable jobs, which are less profitable; a
budgetary control of OVHs; provides info for statistical purposes
Process Costing
Utilization: in mass production industries where units pass through a series of
production stages called processes. All processes are repetitive and continuous.
Ex: chemical industries, oil industry, paint and textile industries. Cost concept:
production moves from one process to the next so it represents output for a
process and input for the next. The total cost is an accumulation of cost
.processes
Breakeven Point
The breakeven point is that quantity of output where total revenues and total
costs are equal, that is, where the operating income is zero. The break-even point
represents the sales amount—in either unit (quantity) or revenue (sales) terms—
that is required to cover total costs, consisting of both fixed and variable costs to
.the company. Total profit at the break-even point is zero
Master Budget
The master budget for a profit oriented organization seeks to build a set of
interrelated budgets which provide a complete picture of the operations of the
business over some future period, usually twelve months. The elements of the
.master budget address both operating and financial concerns
Joint Costing
A joint cost is the cost of a single process that yields multiple products
simultaneously. This cost must be allocated to products. Ex: extractive industries,
chemical industries, agriculture lamb. Joint costs can be allocated following 3
.methods, using market-based data
Cost Center
Is a unit of the organization in respect of which a manager is responsible for costs
under his control. A cost center must be: a homogeneous unit, an identifiable
managerial responsibility. The costs allocated to a cost center should be classified
.in two categories: controllable, non-controllable
Interlocking Cost Acc. System
It consists on two separate accounting systems: a cost accounting system and a
financial accounting system. The basic data are used in financial accounting and
in the same time in cost accounting, where there will be classified by functions for
costing purposes. In the cost acc. syst. there are special accounts and there is a
.no connection btw. accounts used by fin. syst. and the one used by cost system
Integrated Accounting System
It is a single accounting system with no division between financial and cost
accounts, and there is no need for reconciliation between financial profit and cost
profit. Cost profit will be adjusted by any non-cost items in order to obtain
financial profit. This operation is done because only the expenses represent
.elements of cost
Income Statement
An income statement is a financial statement that reports a company's financial
performance over a specific accounting period. Financial performance is assessed
by giving a summary of how the business incurs its revenues and expenses
through both operating and non-operating activities. It also shows the net profit
.or loss incurred over a specific accounting period
Cost Sheet
A cost sheet is a report on which is accumulated all of the costs associated with a
product or production job. A cost sheet is used to compile the margin earned on a
product or job, and can form the basis for the setting of prices on similar products
.in the future
Opportunity Cost
An opportunity cost is a sacrificed cost; this cost measures the opportunity that is
lost or sacrificed when the choice of one course of action requires that alternative
course of action to be given up. The notion of op c. is related to the existence of
alternatives and to the need of sacrificing some variants in the benefit of others.
The sacrificing can result in loosing some benefits and some contributions which
.could be obtained if the initial project would be dropped
Process Costing
Process-costing system calculates the cost for the same product produced during
a period. Identical items are mass-produced for general sale and not for a specific
customer. This method can be applied in oil refining business, chemical industry,
.beverage prouction etc
Management accounting
management accounting is an integral part of management concerned with
identifying, presenting and interpreting information used for: formulating
strategies; planning and controlling; decision-making; optimizing the use of
resources; disclosure to shareholders and other externals to the entity; disclosure
.to employees; safeguarding assets

Different types of businesses will have different accounts. For example, to report
the cost of goods sold a manufacturing business will have accounts for it various
manufacturing costs whereas a retailer will have accounts for purchase of its
stock merchandise. Many industry publish recommended charts of accounts for
their respective industries in order to establish a consistent standard of
comparison among firms in their industry. Accounting software packages often
come with a selection of predefined account charts for various types of
.businesses
There are a trade-off between simplicity and ability to make historical
comparisons. Initially keeping the number of accounts to a minimum has the
advantage of making the accounting system simple. Starting with small number
of accounts, as certain accounts acquired significant balances they would be split
into smaller, more specific accounts. However, following this strategy makes it
more difficult to generate consistent historical comparisons. For example, if the
accounting system is set up with a miscellaneous expenses account that account
that later is broken into more detailed accounts, it then would be difficult to
compare those detailed expenses with past expenses of the same type. In this
respect, there is an advantage in organizing the chart of accounts with a higher
.initial level of detail
Some accounts must be included due to tax reporting requirements. For example
in the U.S the IRS requires that travel, entertainment, advertising, and several
other expenses be tracked in individual accounts. One should check appropriate
.tax regulations and generate a compete list of such required accounts
Other accounts should be set up according to vendor. If the business has more
than one checking account, for example, the chart of accounts might include an
account for each of them
Account order
Balance sheet accounts tend to follow a standard that lists the most liquid assets
first. Revenue and expenses accounts tend to follow the standard of first listing
the items most closely related to operations of the business. For example, sales
would be listed before non-operating income, in some cases, part or all the
.expenses accounts simply are listed in alphabetical order

Sample chart of accounts

The following is an example of some of the accounts that might be included in
chart of accounts
Sample chart of accounts (Block Code Method)
Assets accounts
Petty cash 1000
Cash on hand (e.g in cash reisters) 1010
Regular checking account 1020
Payroll checking account 1030
Saving account 1040
Special account 1050
Investments – money market 1060
Investments- certificates 1070
Accounts receivable 1100
Other receivables 1140
Allowance for doubtful accounts 1150
Raw materials inventory 1200
Supplies inventory 1205
Work in progress inventory 1210
Finished goods inventory 1210
Prepaid expenses 1400
Employee advances 1410
Notes receivable- current 1420
Prepaid interest 1430
Other current assets 1470

Fixed Assets
Furniture and fixtures 1500
Somethng 1510
Vehicles 1520
Other depreciable property 1530
Leasehold improvements 1540
Buildings 1550
Building improvements 1560
Land 1690
Accumulated deprecation, Furniture and fixtures 1700
Accumulated deprecation, Equipment 1710
Accumulated deprecation, Vehicles 1720
Accumulated deprecation, others 1730
Accumulated deprecation, Leasehold 1740
Accumulated deprecation, Buildings 1750
Accumulated deprecation, Building 1760
improvements
Others Assets
Deposits 1900
 Organization costs 1910
Accumulated Amortization, Organization costs 1915
Notes receivable, non-current 1920
Other non-current Assets 1990

Liabilities Accounts
Current Liabilities

Accounts Payable 2000

Accrued expenses 2300
Sales Tax Payable 2310
Wages Payable 2320
Health Insurance Payable 2335
Reg WiP 2340
933p=921p
933n=921m
Reg raw mat 2390
%=raw mat
Wip1
Wip2
F:exp w/ rm=rm
Reg direct lab 2420
%=sal payable
Wip1
Wip2
F:exp w/sal=sal pay
Reg ind sal 2440
%=sal payable
Man ovh
Admin ovh
Sd ovh
F: exp w/sal=sal pay
Other current liabilities 2480
Long-term liabilities
Reg rent/utilities 2700
%=acc pay
Man
Admin
Sd
F:exp w/ rent/util=acc pay
Man OVH alloc 2702
%=man ovh pc
Wip1
Wip2
No entry in fin acc
Obt fin goods 2704
FG1=WiP1
FG2=WiP2
F: fg=rev from prod
Reg period cost 2706
902/pc=%
Sd ovh
adm ovh
No entry in fin acc
Justification of cost 2708
 901=%
FG1
FG2
902/pc
No entry in fin acc
Deferred revenue 2710
Other long-term liabilities 2740

Equity accounts
Raw material/sal payable/acc payable 901
WiP 921
Man OVH 923
Revenue accounts
Admin OVH 924
S&D OVH 925
Finished Goods 931
Exp with raw materials 601
Raw materials (financial) 301
Expense with salaries 641
Sal payable (financial) 421
Cost Of Goods Sold
Expense with rent 612
Accounts payable (financial) 401
Expense w/ utilities 605
Finished Goods (financial) 345
Rev from production 711
Commission 5250
Miscellaneous Factory Costs 5300
Cost Of Goods Sold, Salaries and 5700
Wages
Cost Of Goods Sold, Contract Labor 5730
Cost Of Goods Sold, Freight 5750
Cost Of Goods Sold, Other 5800
Inventory Adjustments 5850
Purchase Returns and Allowances 5900
Purchase Discount 5950
Expenses
Default purchase Expense 6000
Advertising Expense 6010
Amortization Expense 6050
Auto Expense 6100
Bad debt Expense 6150
Bank Fees 6200
Cash Over and Short 6250
Charitable Contributions Expense 6300
Commissions and Fees Expense 6350
Depreciation Expense 6400
Dues and Subscriptions 6450
Employee Benefit Expense, Health Insurance 6500
Employee Benefit Expense, Pension plans 6510
Employee Benefit Expense, Profit Sharing 6520
Employee Benefit Expense, Others 6530
Freight Expense 6550
Gifts Expense 6600
Income Tax Expense 6650
 Insurance Expense, Product Liability 6700
Insurance Expense, Vehice 6710
Interest Expense 6750
Laundry and Dry Cleaning Expense 6800
Legal and Professional Expense 6850
Licenses Expense 6900
Loss on NSF Checks 6950
Maintenance Expense 7000
Meals and Entertainment Expense 7050
Office Expense 7100
Payroll Tax Expense 7200
Penalties and Fines Expense 7250
Postage Expense 7350
Rent or Lease Expense 7400
Repair and Maintenance Expense, Office 7450
Repair and Maintenance Expense, Vehicles 7460
Supplies Expense, Office 7550
Telephone Expense 7600
Training Expense 7600
Travel Expense 7650
Salaries Expense, Officers 7700
Wages Expense 7750
Utilities Expense 7800
Other Expense 8900
Gain/Loss on sale Of assets 9000

Group Code Method

Other info tab Relation General info tab
info tab
Account type Account nature Father Name Code
Balance sheet Debit only account ______ Assets 10000
Balance sheet Debit only account 10000 Current assets 11000
Balance sheet Debit only account 11000 General cash 11100
Balance sheet Debit only account 11100 Cash NIS 11110
Balance sheet Debit only account 11000 Banks 11200
Balance sheet Debit only account 12200 Bank of Palestine 11210
Balance sheet Debit only account 11200 Islamic bank 11220
Balance sheet Debit only account 11000 Debtors 11300
Balance sheet Debit only account 11000 Expenses prepaid 11800
Balance sheet Debit only account 11800 Prepaid Rent 11810
Balance sheet Debit only account 11000 Other assets 11900
Balance sheet Debit only account 11900 Withheld 11910
Balance sheet Debit only account 11900 VAT 11920
Balance sheet Debit only account 10000 Fixed assets 12000
Balance sheet Debit only account 12000 Machinery 12100
Balance sheet Debit only account 12000 Furniture 12200
Balance sheet Credit only account Liabilities 20000
Balance sheet Credit only account 200000 current Liabilities 21000
Balance sheet Credit only account 21000 Loans 21100
Balance sheet Credit only account 21100 Palestine loan 21110
Balance sheet Credit only account 21000 Accrued taxes 21200
Balance sheet Credit only account 21200 VAT Tax Payable 21210
Balance sheet Credit only account 21200 Payroll Taxes Payable 21220
Balance sheet Credit only account 21200 Income Taxes Payable 21230
Balance sheet Credit only account 21000 Creditors 21300
Balance sheet Credit only account Equity 30000
Balance sheet Credit only account 30000 Capital 31000
Balance sheet Credit only account 31000 X capital 31100
Balance sheet Credit only account 31000 Y capital 31200
Trade Debit only account Cost of goods 40000
Trade Debit only account 40000 Begin inventory 41000
Trade Debit only account 40000 Purchases 42000
Trade Credit only account 40000 Purchases Returns 43000
Trade Credit only account 40000 Purchases Discount 44000
Trade Credit only account Revenue 60000
Trade Credit only account 60000 Sales 61000
Trade Debit only account 60000 Sales Returns 62000
Trade Debit only account 60000 Sales Discount 63000