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Chart of Accounts Notes

Chart of accounts is lesson in FABM1 that is also part of accountancy

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11 views5 pages

Chart of Accounts Notes

Chart of accounts is lesson in FABM1 that is also part of accountancy

Uploaded by

jhonrobinsonpadojinog457
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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FABM 1

CHART OF ACCOUNTS

What is Chart of Accounts?

The chart of accounts is a listing of all company’s accounts, organized by assets, liabilities,
equity, revenue, and expenses. This is a useful method of organizing all the financial information of
the company. This serves as the starting point of recordkeeping, so it is an important document for
any business. It is also a valuable tool to prepare financial statements quickly and easily.

Importance of Chart of Accounts

1. It places all the business’ financial data in one document. Thus, it is easy to track all the financial
transactions of the company.

2. It offers a clear picture of the overall financial health of the business by giving complete details of
the company’s cash flow.

3. It is the basis for all accounting reports, as a result, it will be easy to prepare financial statements
for the stakeholders.

Categories on the Chart of Accounts

There are five main categories on the Chart of Accounts which correspond to the five (5) major
accounts. These are the Assets, Liabilities, Equity, Revenue, and Expenses.

Steps in the Preparation of the Chart of Accounts

Let’s take the case of Ms. Tezza of Island Budget Mart.

Step 1. Create two columns.


Step 2. Group the accounts into assets, liabilities, equity, revenue, and expenses.

Step 3. Write all the accounts on the first column. Assets first, then liabilities, equity, revenue,
and expenses.
Step 4. Choose and write the account codes in the second column.
The chart of accounts organizes company’s finances into numbered account categories.
This is based usually on a four-digit numbering system, which helps organize all company’s
accounts. However, the number or code assignment is a discretion of the company.
Here is the most common numbering template to follow when making and numbering
accounts:

 Assets: Numbered 1000 – 1999


 Liabilities: Numbered 2000 – 2999
 Equity: Numbered 3000 - 3999
 Revenue: Numbered 4000 – 4999
 Expenses: Numbered 5000 – 5999

Notice that there are some gaps in the numbers. The purpose is to give more room
for any additional accounts.

Ms. Tezza has come up with this Chart of Accounts for Island Budget Mart.
EXERCISE 1:
From the given data, prepare a chart of accounts. Write your answer on a separate
piece of paper.

Account Name Account Code

Equipment 1200

Accounts Receivable 1100

Utilities Expense 5100

Owner’s Equity 3000

Accounts Payable 2000

Service Revenue 4000

Cash 1000

Notes Payable 2100

Salaries Expense 5000

Building 1300

EXERCISE 2:
Roadside Carwash recently starts its operation at Jordan, Guimaras. The owner has
used the following accounts for business’ various financial transactions.

1. Salaries Expense – 5010 6. Owner’s Capital - 3000

2. Accounts Payable - 2000 7. Service Revenue - 4000

3. Rent Expense - 5020 8. Utilities Expense - 5000

4. Accounts Receivable -1010 9. Salaries Payable – 2010

5. Equipment -1020 10. Cash -1000

Requirement:

Prepare the chart of accounts of Roadside Carwash. Write your answer on a separate
piece of paper.
ACTIVITY:

The following accounts are used by Cabalagnan Company Limited (CCL), a retail firm,
in their accounting records.

Accounts Payable Land


Accounts Receivable Other Income
Partner’s Capital Unearned Revenue
Building Interest Income
Cash Sales
Cost of Goods Sold Supplies
Delivery vehicle Supplies Expense
Depreciation Expense Utilities Expense
Interest Expense Loans Payable

Prepare a chart of accounts for CCL using the following guidelines:


1. All asset accounts should be under the code numbers 1000-1999.
2. All liability accounts should be under the code numbers 2000-2999.
3. All equity accounts should be under the code numbers 3000-3999.
4. All revenue accounts should be under the code numbers 4000-4999.
5. All expense accounts should be under the code numbers 5000-5999.

Write your answer on a separate piece of paper.

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