Accounting Chapter 4 Teacher Notes

Chart of Accounts

A Chart of Accounts is a list of all accounts used by a business.

• Asset accounts begin with 1.
• Liability accounts begin with 2.
• Owner’s equity accounts begin with 3.
• Revenue accounts begin with 4.
• Expense accounts begin with 5.

Sample Chart of Accounts (COA)

Balance Sheet Accounts

Income Statement Accounts

(100) Assets

110 Cash
120 Petty Cash
130 AR Thing 1
131 AR Thing 2
132 AR Mary Poppins
140 Office Supplies
145 Sales Supplies

(400) Revenue

410 Sales

(200) Liabilities

210 Homer Simpson Homes
220 Winnie the Pooh Water

(500) Expenses

510 Advertising Expense
515 Automobile Expense
530 Catering Expense
540 Rent Expense
550 Salary Expense
570 Utility Expense

(300) Owner's Equity

310 My Money, Capital
320 My Money, Drawing

 


Double-Entry Accounting

Record keeping that involves two entries for each business transaction.

Using T Accounts:

A T account is "an accounting device used to analyze transactions".

T-Account

Left side
DEBIT SIDE

Right side
CREDIT SIDE

Account Balances

Normal balance is that side of the account you increase when you post a deposit, or increase to that account.


Analyzing how transactions affect accounts:
Chart of accounts: a numbered list of accounts used by a business

Visit the NetMBA Website for detailed information about a Chart of Accounts.


Questions for analyzing transactions:

  1. Which accounts (from the chart of accounts) are affected?
  2. How is each account classified? (asset, liability, or owner's equity)
  3. How is each classification changed? (increased or decreased)
  4. How is each amount entered into the accounts? (left or right side, debit or credit)


Recording Transactions:

Received Cash from owner as an investment: changes assets and OE (capital)
        Cash – increase (debit)
        Capital – increase (credit)

Paid cash for supplies: changes 2 asset accounts
        Supplies – increase (debit)
        Cash – decrease (credit)

Paid cash for insurance: changes 2 asset accounts
        Prepaid Insurance – increase (debit)
        Cash – decrease (credit)

Bought supplies on account: changes one asset and one liability account
        Supplies – increase (debit)
        Accounts Payable – increase (credit)

Paid cash on account: changes one asset and one liability account
        Accounts Payable – decrease (debit)
        Cash - decrease (credit)

Received cash from sales: changes assets and OE
        Cash – increase (debit)
        Sales – increases OE (credit)

Sold services on account: changes assets and OE
        Accounts Receivable – increase (debit)
        Sales – increases OE (credit)

Paid cash for an expense: changes one asset account and OE
        Expense – decreases OE (debit)
        Cash – decrease (credit)

Paid cash for an expense: changes one asset account and OE
        Expense – decreases OE (debit)
        Cash – decrease (credit)

Received cash on account: changes two asset accounts
        Cash – increase (debit)
        Accounts Receivable – decrease (credit)

Paid cash to owner for personal use: changes one asset account and OE
        Drawing – decreases OE (debit)
        Cash – decrease (credit)