Chart of Accounts and Formal Financial Statements

The recording process continued!

Unit

4

Chart of Accounts To help organize the expanded ledger, it is customary to

number the accounts in the ledger. A list of the ledger account names and numbers, called a

chart of accounts Each account in a ledger has a title and a number.

Accounts are placed in a ledger in numerical sequence so they may be located quickly.

The accounts in the ledger are numbered in the same order as they appear on the balance sheet and income statement.

Notice the gaps left between account numbers in case new accounts need to be inserted.

In computer accounting, the account number becomes a numeric code and is used in place of the account title when you journalize transactions.

Only the number is entered on the keyboard. The account name then automatically appears on the screen.

These numbers are used for identification and reference, particularly in computer systems.

Most businesses have copies of their chart of accounts available for their employees, as well as for outsiders such as auditors.

Account Form to Report Form

The account form balance sheet lists the assets on the left side and the liabilities and owner's equity on the right side.

The account form balance sheet was essential to establishing the concept:

Left Side Right Side

From this concept, the balance sheet equation was derived:

Assets Liabilities Owner’s Equity

The balance sheet equation is an inflexible rule and forms the basis of the double-entry accounting system.

Concept Review

In the report form balance sheet, the assets, liabilities, and owner's equity are listed vertically.

Important to remember that the Balance Sheet equation still applies.

However, the Balance Sheet does not always appear in Account form!!!

It also appears in Report Form!

For the report form balance sheet, dollar signs should be placed as follows: beside the first figure in each column in both sections

of the statement; and beside the final total in both sections of the statement.

Facts to Remember

Report Form

From Trial Balance to Financial Statements

Income Statement

since you must calculate the net income or loss for the accounting period to complete the equity section of the balance sheet, the income statement is prepared before the balance sheet.

Report Form or Formal Balance Sheet

The EquityEquation In BalanceSheet form