Assets:
Cash (main checking account)
Cash (payroll account)
Petty Cash
Marketable Securities
Accounts Receivable
Allowance for Doubtful Accounts (contra account)
Prepaid Expenses
Inventory
Fixed Assets
Accumulated Depreciation (contra account)
Other Assets
Liabilities:
Accounts Payable
Accrued Liabilities
Taxes Payable
Wages Payable
Notes Payable
Stockholders' Equity:
Common Stock
Preferred Stock
Retained Earnings
Revenue:
Revenue
Sales returns and allowances (contra account)
Expenses:
Cost of Goods Sold
Advertising Expense
Bank Fees
Depreciation Expense
Payroll Tax Expense
Rent Expense
Supplies Expense
Utilities Expense
Wages Expense
Other Expenses
Chart of Accounts Best Practices
The following points can improve the chart of accounts concept for a company:
Consistency. It is of some importance to initially create a chart of accounts that is unlikely to
change for several years, so that you can compare the results in the same account over a multi -
year period. If you start with a small number of accounts and then gradually expand the number
of accounts over time, it becomes increasingly difficult to obtain comparable financial
information for more than the past year.
Lock down. Do not allow subsidiaries to change the standard chart of accounts without a very
good reason, since having many versions in use makes it more difficult to consolidate the
results of the business.
Size reduction. Periodically review the account list to see if any accounts contain relatively
immaterial amounts. If so, and if this information is not needed for special reports, shut down
these accounts and roll the stored information into a larger account. Doing this periodically
keeps the number of accounts down to a manageable level.
If you acquire another company, a key task is shifting the acquiree's chart of accounts into the
parent company's chart of accounts, so that you can present consolidated financial results. This
process is known as mapping the acquiree's information into the parent's chart of accounts.
General Ledger Accounts
The accounts that are used to sort and store transactions are found in the company's general ledger.
The general ledger is often arranged according to the following seven classifications. (A few
examples of the related account titles are shown in parentheses.)
Assets (Cash, Accounts Receivable, Land, Equipment)
Liabilities (Loans Payable, Accounts Payable, Bonds Payable)
Stockholders' equity (Common Stock, Retained Earnings)
Operating revenues (Sales, Service Fees)
Operating expenses (Salaries Expense, Rent Expense, Depreciation Expense)
Non-operating revenues and gains (Investment Income, Gain on Disposal of Truck)
Non-operating expenses and losses (Interest Expense, Loss on Disposal of Equipment)
Balance Sheet Accounts
The first three classifications are referred to as balance sheet accounts since the balances in these
accounts are reported on the financial statement known as the balance sheet.
Balance sheet accounts
o Assets
o Liabilities
o Stockholders' (or Owner's) equity
The balance sheet accounts are also known as permanent accounts (or real accounts) since the
balances in these accounts will not be closed at the end of an accounting year. Instead, these
account balances are carried forward to the next accounting year.
Income Statement Accounts
The four remaining classifications of accounts are referred to as income statement accounts since the
amounts in these accounts will be reported on the financial statement known as the income
statement.
Income statement accounts
o Operating revenues
o Operating expenses
o Non-operating revenues and gains
o Non-operating expenses and losses
