Bookkeeping Practice Sets
The Chart of Accounts is normally
arranged or grouped by the Major Types of Accounts. The Balance
Sheet Accounts (Assets, Liabilities, & Equity) are presented
first, followed by the Income Statement Accounts (Revenues &
Expenses).
Here we're going to discuss the
Balance Sheet Portion of the Chart Of Accounts and how it's
organized.
While most balance sheet accounts
that need to be set up are common to all businesses, some depend on
the type of business. Inventory accounts are needed for those
businesses that produce and sell goods or "inventoriable" services
as well as those that just buy and resell the goods.
The Assets, Liabilities, and
Equity are presented in separate sections of a Balance Sheet in
order that important relationships and subtotals and totals can be
presented.
Note: This USA Order may
vary depending on your country.
- Assets
Formal Definition:The properties used in the operation or
investment activities of a business.
Informal Definition:All the good
stuff a business has (anything with value). The goodies.
Additional Explanation: The good
stuff includes tangible and intangible stuff. Tangible stuff you
can physical see and touch such as vehicles, equipment and
buildings. Intangible stuff is like pieces of paper (sales
invoices) representing loans to your customers where they promise
to pay you later for your services or product.
Assets are generally assigned to
sub-categories or sub-groups. Similar types of assets are grouped
together. The groups are based on the asset's purpose or use and
liquidity (availability of the asset for paying debts).
The order that the Assets are
presented are based on the following guidelines:
- List the Items that are
cash.
- List the Items that are held
primarily for converting into cash and list them in the order of
their expected conversion into cash (beginning with the fastest and
moving toward the slowest).
- List the Items used in operations
that could be converted into cash listed in the order of their
expected conversion into cash (beginning with the fastest and
moving toward the slowest).
- List the Items whose cost provide
future benefits or can not be converted into cash.
- Current
Assets
Current Assets include Cash and Assets that will be converted into
cash or consumed in a relatively short period of time, usually
within a year or the business's operating cycle. Prepaid Expenses
and Supplies (already paid for or a liability incurred) are
included because they will normally be used or consumed within the
operating cycle.
- Liabilities
Formal Definition:Claims by creditors to the property (assets) of a
business until they are paid.
Informal Definition:Other's claims
to the business's stuff. Amounts the business owes to
others.
Additional Explanation: Usually
one of a business's biggest liabilities (hopefully they are not
past due) is to suppliers where they have bought goods and services
and charged them.
Liabilities are listed in the
order of their expected payment date (maturity). In other words,
how soon they must be repaid. Liability accounts are separated into
current (short-term) liabilities and long-term liabilities.
Short-Term Liabilities generally are debts that must be repaid
within 1 year from the date of the balance sheet. Long-Term
Liabilities are debts that must be paid more than 1 year from the
date of the balance sheet.
- Current
Liabilities
Current liabilities are the portion of obligations (amounts owed)
due to be paid within the current operating cycle (normally a year)
and that normally require the use of existing current assets to
satisfy the debt.
- Short Term Notes (Demand
Notes)
- Accounts Payable Trade
A sub ledger is normally maintained in order to keep up with and
track amounts owed to individual suppliers.
- Accounts Payable
Other
- Payroll Liabilities
- Accrued Salaries and Wages
Payable
- Employee Payroll Withholdings
(Deductions)
- Employee U.S. Federal Income Tax
Withheld
- Employee State Income Tax
Withheld
- Employee Local Income Tax
Withheld
- Employee FICA
Withheld
- Employee Medicare
Withheld
- Employee Garnishments
Withheld
- Employee Benefits
- Employee Insurance Deduction
Withheld
- 401 K Deduction
Withheld
- IRA Deduction
Withheld
- Other Payroll
Withholdings
- Employer Provided Benefits
- Mandatory
- Employer FICA Contribution
Payable
- Employer Medicare Contribution
Payable
- Employer Federal Unemployment
Payable
- Employer State Unemployment
Payable
- Employer Workmen's Compensation
Insurance Payable
- Optional
- Employer Provided Health
Insurance Payable
- Employer Provided Life Insurance
Payable
- Employer Provided 401 K
Contributions Payable
- Employer Provided IRA
Contributions Payable
- Sales Tax Payable
- Unearned Revenues
- Customer Advances and Deposits
Payable
- Interest Payable
- Bank Loans (Notes Payable) -
Current principal portion of Long-Term Notes
- Notes Payable (other than bank
notes) - Current principal portion of Long-Term Notes
- Accrued and Estimated
Liabilities
- Accrued / Estimated Taxes
Payable
- Accrued Real Estate and Property
Taxes Payable
- Accrued Income and Franchise
Taxes Payable
- Accrued Federal Taxes
Payable
- Accrued State Taxes
Payable
- Accrued Local Taxes
Payable
- Other Accruals
Payable
- Other Current
Liabilities
- Long-Term
Liabilities
Long term liability accounts are the portions of debts with due
dates greater than a year or the operating cycle. These are
obligations that are not expected to be paid within the current
operating cycle.
- Bank Loans (Notes Payable) - Long
Term principal portion
- Notes Payable (other than bank
notes) - Long Term principal portion
- Other Long-Term
Liabilities
- Equity
(Capital)
Formal Definition:The owner's rights or claims to the property
(assets) of the business.
Informal Definition:What the
business owes the owner(s). The good stuff left for the owner(s)
assuming all liabilities (amounts owed) have been paid.
The accounts set up in this
section will depend on the legal structure of your
business.
These accounts report the Owner's
Capital Invested and the Accumulated Profits or Losses for the
business since it began. Owner sub ledgers may also be maintained
to keep up with and track shares and interests and amounts owed
individual owners.
- Owner's Capital
- Owner's Drawing
- Partnership or
Limited Liability Company
- Partner's or Member's
Capital
- Partner's or Member's
Drawing
- Common Stock Par or Stated
Value
- Premium Paid on Common
Stock
- Preferred Stock Par or Stated
Value
- Premium Paid on Preferred
Stock
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