The chart of accounts is a set of ledgers used to record economic activity of the business. This is achieved by entering each economic transaction into a set of journals identifying ledgers (accounts) to log the amounts The books are formatted to reflect the balance sheet and income statement items. The chart of accounts is designed to present the information in the prescribed format. The layout of the chart of accounts is essential in the final outcome of reports for the entrepreneur.
In accounting sometimes an extraordinary event occurs. When this happens the associated revenue and expense is recorded in the expense type of accounts. There are two different methods used to record this transaction – gross or net.
Up to this point in this series about bookkeeping I’ve only mentioned accounts (ledgers) by name. To speed up the process of entering information accountants converted names to numbers. This made it easier to enter information in the original journals. Instead of long hand written words for the particular ledger, you simply enter a number.
The primary report used by accountants is the trial balance. It is the job of the bookkeeper to make sure that it is in balance and that there are no abnormal values within the respective types of accounts. This lesson sums up the prior 15 lessons and illustrates the trial balance with a condensed version and an expanded version.
A control account in the Chart of Accounts is used when there is a need to separate multiple third parties with a similar function. Work in process works perfectly as a control account.
To properly create a set of ledgers there must be a list of accounts. This list is referred to as the ‘Chart of Accounts’ or for shorthand – COA.
The trial balance is an accountant’s report used to identify issues with the respective ledger accounts. In general, the trial balance sums all the debits and credits in the footer section and the accountant verifies that the total debits equal total credits. This confirms proper entry in the dual entry accounting system.
The goal of accounting is to record the economic activity of the business. This is achieved by entering each economic transaction into a set of books. The books are formatted to reflect the balance sheet and income statement items. The chart of accounts is designed to present the information in the prescribed format.
