Accounts and the Chart of Accounts

Accounts and the Chart of Accounts
An Account is a record used to summarize increases and decreases in a particular asset or liability, revenue or expense, or in owner's equity. Accounts usually have very simple and generic titles such as Cash, Accounts Payable, Sales, and Inventory. These are simple and descriptive terms under which many different transactions can be recorded.

Accounts are organized in a Chart of Accounts . This is a simple list of account titles presented in the following order: Assets, Liabilities, Owners' Equity, Revenue, Expenses. Organizing accounts in the correct order makes it much easier to prepare financial statements and enter transactions.

When doing homework problems students should read carefully and look for a Chart of Accounts, or for references to specific accounts, that should be used in that problem. If you don't find these, you should review the examples in the textbook chapter material for the correct accounts to use.

Here is a sample Chart of Accounts, showing accounts in the correct order. Account group dividers are usually omitted in actual practice. They are shown here for illustrative purposes, so the student can see how the Chart of Accounts is organized, and how it relates to the financial statements.

ABC Company, Inc.
Chart of Accounts

Balance Sheet Accounts ---- Asset Accounts ---- Cash Accounts Receivable Prepaid Expenses Supplies Inventory Land Buildings Vehicles & Equipment Accumulated Depreciation Other Assets ---- Liability Accounts ---- Accounts Payable Notes Payable - Current Notes Payable - Long Term ---- Stockholders' Equity Accounts ---- Common Stock Retained Earnings

Income Statement Accounts ---- Revenue Accounts ---- Sales Revenue Sales Returns & Allowances Sales Discounts Interest Income ---- Expense Accounts ---- Advertising Expense Bank Fees Depreciation Expense Payroll Expense Payroll Tax Expense Rent Expense Income Tax Expense Telephone Expense Utilities Expense