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This appendix describes the types of account numbering formats that can be used to con- struct a chart of accounts, and also lists sample charts of accounts that use each of the for- mats. All of the charts of accounts shown in this appendix follow the same general sequence of account coding, which itemizes the accounts in the balance sheet first, and the income statement second. That sequence looks like this: Current assets Fixed assets Other assets Current liabilities Long-term liabilities Equity accounts Revenue Cost of goods sold Selling, general and administrative expenses Income taxes Extraordinary items THREE-DIGIT ACCOUNT CODE STRUCTURE A three-digit account code structure allows one to create a numerical sequence of accounts that contains up to 1,000 potential accounts. It is useful for small businesses that have no pre-defined departments or divisions that must be broken out separately. A sample chart of accounts using this format is shown below: 553 APPENDIX A The Chart of Accounts Account Number Description 010 Cash 020 Petty cash 030 Accounts receivable 040 Reserve for bad debts 050 Marketable securities 060 Raw materials inventory 070 Work-in-process inventory 080 Finished goods inventory 090 Reserve for obsolete inventory 100 Fixed assets—Computer equipment 110 Fixed assets—Computer software 120 Fixed assets—Furniture and fixtures 130 Fixed assets—Leasehold improvements 140 Fixed assets—Machinery 150 Accumulated depreciation—Computer equipment 160 Accumulated depreciation—Computer software 170 Accumulated depreciation—Furniture and fixtures 180 Accumulated depreciation—Leasehold improvements 190 Accumulated depreciation—Machinery 200 Other assets 300 Accounts payable 310 Accrued payroll liability 320 Accrued vacation liability 330 Accrued expenses liability—Other 340 Unremitted sales taxes 350 Unremitted pension payments 360 Short-term notes payable 370 Other short-term liabilities 400 Long-term notes payable 500 Capital stock 510 Retained earnings 600 Revenue 700 Cost of goods sold—Materials 710 Cost of goods sold—Direct labor 720 Cost of goods sold—Manufacturing supplies 730 Cost of goods sold—Applied overhead 800 Bank charges 805 Benefits 810 Depreciation 815 Insurance 825 Office supplies 830 Salaries and wages 835 Telephones 840 Training 554 Appendix A The Chart of Accounts Account Number Description 845 Travel and entertainment 850 Utilities 855 Other expenses 860 Interest expense 900 Extraordinary items Notice how each clearly definable block of accounts begins with a different set of account numbers. For example, current liabilities begin with “300,” revenues begin with “600,” and cost of goods sold items begin with “700.” This not only makes it easier to navigate through the chart of accounts, but is also mandated by many computerized accounting software packages. FIVE-DIGIT ACCOUNT CODE STRUCTURE A five-digit account code structure is designed for those organizations with clearly defined departments, each of which is tracked with a separate income statement. This format uses the same account codes for the balance sheet accounts that we just saw for three-digit account codes, but replicates at least the operating expenses for each department (and sometimes for the revenue accounts, too). An example of this format is as follows, using the engineering and sales departments to illustrate the duplication of accounts: Account Number Department Description 00-010 xxx Cash 00-020 xxx Petty cash 00-030 xxx Accounts receivable 00-040 xxx Reserve for bad debts 00-050 xxx Marketable securities 00-060 xxx Raw materials inventory 00-070 xxx Work-in-process inventory 00-080 xxx Finished goods inventory 00-090 xxx Reserve for obsolete inventory 00-100 xxx Fixed assets—Computer equipment 00-110 xxx Fixed assets—Computer software 00-120 xxx Fixed assets—Furniture and fixtures 00-130 xxx Fixed assets—Leasehold improvements 00-140 xxx Fixed assets—Machinery 00-150 xxx Accumulated depreciation—Computer equipment 00-160 xxx Accumulated depreciation—Computer software 00-170 xxx Accumulated depreciation—Furniture and fixtures 00-180 xxx Accumulated depreciation—Leasehold improvements 00-190 xxx Accumulated depreciation—Machinery 00-200 xxx Other assets 00-300 xxx Accounts payable (continued) Appendix A The Chart of Accounts 555 Account Number Department Description 00-310 xxx Accrued payroll liability 00-320 xxx Accrued vacation liability 00-330 xxx Accrued expenses liability—Other 00-340 xxx Unremitted sales taxes 00-350 xxx Unremitted pension payments 00-360 xxx Short-term notes payable 00-370 xxx Other short-term liabilities 00-400 xxx Long-term notes payable 00-500 xxx Capital stock 00-510 xxx Retained earnings 00-600 xxx Revenue 00-700 xxx Cost of goods sold—Materials 00-710 xxx Cost of goods sold—Direct labor 00-720 xxx Cost of goods sold—Manufacturing supplies 00-730 xxx Cost of goods sold—Applied overhead 10-800 Engineering Bank charges 10-805 Engineering Benefits 10-810 Engineering Depreciation 10-815 Engineering Insurance 10-825 Engineering Office supplies 10-830 Engineering Salaries and wages 10-835 Engineering Telephones 10-840 Engineering Training 10-845 Engineering Travel and entertainment 10-850 Engineering Utilities 10-855 Engineering Other expenses 10-860 Engineering Interest expense 20-800 Sales Bank charges 20-805 Sales Benefits 20-810 Sales Depreciation 20-815 Sales Insurance 20-825 Sales Office supplies 20-830 Sales Salaries and wages 20-835 Sales Telephones 20-840 Sales Training 20-845 Sales Travel and entertainment 20-850 Sales Utilities 20-855 Sales Other expenses 20-860 Sales Interest expense 00-900 xxx Extraordinary items In this example, all expense accounts are replicated for every department. This does not mean, however, that all accounts must be used for every department. For example, it is most unlikely that bank charges will be ascribed to either the engineering or sales departments. Accordingly, those accounts that are not to be used can be rendered inactive in the accounting system, so that they never appear in the general ledger. 556 Appendix A The Chart of Accounts SEVEN-DIGIT ACCOUNT CODE STRUCTURE A seven digit account code structure is used by those companies that not only have mul- tiple departments, but also multiple divisions or locations, for each of which the manage- ment team wants to record separate accounting information. This requires the same coding structure used for the five-digit system, except that two digits are placed in front of the code to signify a different company division. These new digits also apply to balance sheet accounts, since most organizations will want to track assets and liabilities by division. The following chart of accounts, which identifies accounts for divisions in Atlanta and Seattle, and which continues to use the engineering and sales departments, is an example of how the seven-digit account code structure is compiled. Account No. Division Department Description 10-00-010 Atlanta xxx Cash 10-00-020 Atlanta xxx Petty cash 10-00-030 Atlanta xxx Accounts receivable 10-00-040 Atlanta xxx Reserve for bad debts 10-00-050 Atlanta xxx Marketable securities 10-00-060 Atlanta xxx Raw materials inventory 10-00-070 Atlanta xxx Work-in-process inventory 10-00-080 Atlanta xxx Finished goods inventory 10-00-090 Atlanta xxx Reserve for obsolete inventory 10-00-100 Atlanta xxx Fixed assets—Computer equipment 10-00-110 Atlanta xxx Fixed assets—Computer software 10-00-120 Atlanta xxx Fixed assets—Furniture and fixtures 10-00-130 Atlanta xxx Fixed assets—Leasehold improvements 10-00-140 Atlanta xxx Fixed assets—Machinery 10-00-150 Atlanta xxx Accumulated depreciation—computer equipment 10-00-160 Atlanta xxx Accumulated depreciation—Computer software 10-00-170 Atlanta xxx Accumulated depreciation—Furniture and fixtures 10-00-180 Atlanta xxx Accumulated depreciation—Leasehold improvements 10-00-190 Atlanta xxx Accumulated depreciation—Machinery 10-00-200 Atlanta xxx Other assets 10-00-300 Atlanta xxx Accounts payable 10-00-310 Atlanta xxx Accrued payroll liability 10-00-320 Atlanta xxx Accrued vacation liability 10-00-330 Atlanta xxx Accrued expenses liability—other 10-00-340 Atlanta xxx Unremitted sales taxes 10-00-350 Atlanta xxx Unremitted pension payments 10-00-360 Atlanta xxx Short-term notes payable 10-00-370 Atlanta xxx Other short-term liabilities 10-00-400 Atlanta xxx Long-term notes payable (continued) Appendix A The Chart of Accounts 557 Account No. Division Department Description 10-00-500 Atlanta xxx Capital stock 10-00-510 Atlanta xxx Retained earnings 10-00-600 Atlanta xxx Revenue 10-00-700 Atlanta xxx Cost of goods sold—Materials 10-00-710 Atlanta xxx Cost of goods sold—Direct labor 10-00-720 Atlanta xxx Cost of goods sold—Manufacturing supplies 10-00-730 Atlanta xxx Cost of goods sold—Applied overhead 10-10-800 Atlanta Engineering Bank charges 10-10-805 Atlanta Engineering Benefits 10-10-810 Atlanta Engineering Depreciation 10-10-815 Atlanta Engineering Insurance 10-10-825 Atlanta Engineering Office supplies 10-10-830 Atlanta Engineering Salaries and wages 10-10-835 Atlanta Engineering Telephones 10-10-840 Atlanta Engineering Training 10-10-845 Atlanta Engineering Travel and entertainment 10-10-850 Atlanta Engineering Utilities 10-10-855 Atlanta Engineering Other expenses 10-10-860 Atlanta Engineering Interest expense 10-20-800 Atlanta Sales Bank charges 10-20-805 Atlanta Sales Benefits 10-20-810 Atlanta Sales Depreciation 10-20-815 Atlanta Sales Insurance 10-20-825 Atlanta Sales Office supplies 10-20-830 Atlanta Sales Salaries and wages 10-20-835 Atlanta Sales Telephones 10-20-840 Atlanta Sales Training 10-20-845 Atlanta Sales Travel and entertainment 10-20-850 Atlanta Sales Utilities 10-20-855 Atlanta Sales Other expenses 10-20-860 Atlanta Sales Interest expense 10-00-900 Atlanta xxx Extraordinary items 20-00-010 Seattle xxx Cash 20-00-020 Seattle xxx Petty cash 20-00-030 Seattle xxx Accounts receivable 20-00-040 Seattle xxx Reserve for bad debts 20-00-050 Seattle xxx Marketable securities 20-00-060 Seattle xxx Raw materials inventory 20-00-070 Seattle xxx Work-in-process inventory 20-00-080 Seattle xxx Finished goods inventory 20-00-090 Seattle xxx Reserve for obsolete inventory 20-00-100 Seattle xxx Fixed assets—Computer equipment 20-00-110 Seattle xxx Fixed assets—Computer software 20-00-120 Seattle xxx Fixed assets—Furniture and fixtures 20-00-130 Seattle xxx Fixed assets—Leasehold improvements 558 Appendix A The Chart of Accounts Account No. Division Department Description 20-00-140 Seattle xxx Fixed assets—Machinery 20-00-150 Seattle xxx Accumulated depreciation—Computer equipment 20-00-160 Seattle xxx Accumulated depreciation—Computer software 20-00-170 Seattle xxx Accumulated depreciation—Furniture and fixtures 20-00-180 Seattle xxx Accumulated depreciation—Leasehold improvements 20-00-190 Seattle xxx Accumulated depreciation—Machinery 20-00-200 Seattle xxx Other assets 20-00-300 Seattle xxx Accounts payable 20-00-310 Seattle xxx Accrued payroll liability 20-00-320 Seattle xxx Accrued vacation liability 20-00-330 Seattle xxx Accrued expenses liability—other 20-00-340 Seattle xxx Unremitted sales taxes 20-00-350 Seattle xxx Unremitted pension payments 20-00-360 Seattle xxx Short-term notes payable 20-00-370 Seattle xxx Other short-term liabilities 20-00-400 Seattle xxx Long-term notes payable 20-00-500 Seattle xxx Capital stock 20-00-510 Seattle xxx Retained earnings 20-00-600 Seattle xxx Revenue 20-00-700 Seattle xxx Cost of goods sold—Materials 20-00-710 Seattle xxx Cost of goods sold—Direct labor 20-00-720 Seattle xxx Cost of goods sold—Manufacturing supplies 20-00-730 Seattle xxx Cost of goods sold—Applied overhead 20-10-800 Seattle Engineering Engineering—Bank charges 20-10-805 Seattle Engineering Engineering—Benefits 20-10-810 Seattle Engineering Engineering—Depreciation 20-10-815 Seattle Engineering Engineering—Insurance 20-10-825 Seattle Engineering Engineering—Office supplies 20-10-830 Seattle Engineering Engineering—Salaries and wages 20-10-835 Seattle Engineering Engineering—Telephones 20-10-840 Seattle Engineering Engineering—Training 20-10-845 Seattle Engineering Engineering—Travel and entertainment 20-10-850 Seattle Engineering Engineering—Utilities 20-10-855 Seattle Engineering Engineering—Other expenses 20-10-860 Seattle Engineering Engineering—Interest expense 20-20-800 Seattle Sales Sales—Bank charges 20-20-805 Seattle Sales Sales—Benefits 20-20-810 Seattle Sales Sales—Depreciation 20-20-815 Seattle Sales Sales—Insurance 20-20-825 Seattle Sales Sales—Office supplies (continued) Appendix A The Chart of Accounts 559 Account No. Division Department Description 20-20-830 Seattle Sales Sales—Salaries and wages 20-20-835 Seattle Sales Sales—Telephones 20-20-840 Seattle Sales Sales—Training 20-20-845 Seattle Sales Sales—Travel and entertainment 20-20-850 Seattle Sales Sales—Utilities 20-20-855 Seattle Sales Sales—Other expenses 20-20-860 Seattle Sales Sales—Interest expense 20-00-900 Seattle xxx Extraordinary items 560 Appendix A The Chart of Accounts This appendix contains a list of the most common journal entries that an accountant is likely to deal with. There are a plethora of possible transactions that would require an immense tome to address, so the emphasis here is solely on the most common journal entries, not on those that will only crop up on rare occasions. The journal entries are listed in alphabetical order, and include explanatory text. This text may be sufficient for one to copy into actual journal entry descriptions, with slight modifications. The text makes additional explanatory notations where necessary, but the main focus is on presenting a brief summarization of each entry. A set of accounts are listed for each sample journal entry, which may vary some- what from the titles of accounts used in one’s company. If there are a wide range of pos- sible entries to different accounts, then this is noted with an entry in brackets, such as “[Salaries—itemize by department].” A triple “x” is noted under the debit or credit head- ing for each entry, denoting the most likely entry that would be made. If there is a rea- sonable chance that either a debit or credit entry would be made, then this is noted in the description. There are a few instances in which journal entries should be reversed in the follow- ing accounting period. When this is necessary, a warning note is attached to the bottom of the relevant journal entries. Accounts Payable, Reversal: To reverse an account payable transaction that had previ- ously been entered. There are a variety of possible accounts to which a reversal could be credited, so many possible accounts are noted in brackets. Debit Credit Accounts payable xxx [Expense account] xxx [Asset account] xxx [Accrued liability account] xxx 561 APPENDIX B Journal Entries Accounts Payable, Void Company Check: To reverse a previous check payment to a sup- plier. This entry assumes that there is an additional charge from the bank for a stop pay- ment on the check, as well as the reversal of an early payment discount on the original payment. Debit Credit Bank charges (stop payment) xxx Early payment discount xxx Cash xxx [Expense or asset for which xxx payment was made] Accounts Receivable, Write Off: To cancel an account receivable by offsetting it against the reserve for bad debts located in the bad debt accrual account. Debit Credit Bad debt accrual xxx Accounts receivable xxx Accrue Bad Debt Expense: To accrue for projected bad debts, based on historical experience. Debit Credit Bad debt expense xxx Bad debt accrual xxx Accrue Benefits: To accrue for all employee benefit expenses incurred during the month, for which an associated accounting entry has not yet been made. Debit Credit Medical insurance expense xxx Dental insurance expense xxx Disability insurance expense xxx Life insurance expense xxx Accrued benefits xxx This entry should be reversed in the following accounting period. Accrue Property Taxes: To accrue for the property tax liability incurred during the accounting period based on the known base of fixed assets. Debit Credit Property tax expense xxx Accrued property taxes xxx This entry should not be reversed in the following accounting period, since the tax pay- ment will not normally occur in the following period, but instead only a few times per year. Instead, the actual payment should be charged directly against the accrual account. 562 Appendix B Journal Entries [...]... 5.2064 5.7466 6.2469 6. 7101 7.1390 7.5361 7.9038 8.2442 8.5595 8.8514 9.1216 9.3719 9.6036 9.8181 10. 0168 10. 2007 10. 3711 10. 5288 10. 6748 10. 8100 10. 9352 11.0511 11.1584 11.2578 8% 0.9174 1.7591 2.5313 3.2397 3.8897 4.4859 5.0330 5.5348 5.9952 6.4177 6.8052 7.1607 7.4869 7.7862 8.0607 8.3126 8.5436 8.7556 8.9501 9.1285 9.2922 9.4424 9.5802 9.7066 9.8226 9.9290 10. 0266 10. 1161 10. 1983 10. 2737 9% 0.9091 1.7355... 4.9173 5.5824 6.2098 6.8017 7.3601 7.8869 8.3838 8.8527 9.2950 9.7122 10. 1059 10. 4773 10. 8276 11.1581 11.4699 11.7641 12.0416 12.3034 12.5504 12.7834 13.0032 13. 2105 13.4062 13.5907 13.7648 6% 0.9346 1.8080 2.6243 3.3872 4 .100 2 4.7665 5.3893 5.9713 6.5152 7.0236 7.4987 7.9427 8.3577 8.7455 9 .107 9 9.4466 9.7632 10. 0591 10. 3356 10. 5940 10. 8355 11.0612 11.2722 11.4693 11.6536 11.8258 11.9867 12.1371 12.2777... 8.6271 9.3173 10. 0627 8% Compound Interest Table (Future Amount of 1 at Compound Interest Due in N Periods) of Years Number Exhibit C-2 9% 1.0900 1.1881 1.2950 1.4116 1.5386 1.6771 1.8280 1.9926 2.1719 2.3674 2.5804 2.8127 3.0658 3.3417 3.6425 3.9703 4.3276 4.7171 5.1417 5.6044 6 .108 8 6.6586 7.2579 7.9111 8.6231 9.3992 10. 2451 11.1671 12.1722 13.2677 10% 1 .100 0 1. 2100 1.3 310 1.4641 1. 6105 1.7716 1.9487... 6.7275 7.4002 8.1403 8.9543 9.8497 10. 8347 11.9182 13. 1100 14.4 210 15.8631 17.4494 11% 1. 1100 1.2321 1.3676 1.5181 1.6851 1.8704 2.0762 2.3045 2.5580 2.8394 3.1518 3.4985 3.8833 4. 3104 4.7846 5. 3109 5.8951 6.5436 7.2633 8.0623 8.9492 9.9336 11.0263 12.2392 13.5855 15.0799 16.7386 18.5799 20.6237 22.8923 12% 1.1200 1.2544 1.4049 1.5735 1.7623 1.9738 2. 2107 2.4760 2.7731 3 .105 8 3.4785 3.8960 4.3635 4.8871... 55.4568 60.8933 66.7648 73 .105 9 79.9544 87.3508 95.3388 103 .9659 113.2832 9% 1.0000 2.0900 3.2781 4.5731 5.9847 7.5233 9.2004 11.0285 13.0 210 15.1929 17.5603 20.1407 22.9534 26.0192 29.3609 33.0034 36.9737 41.3013 46.0185 51.1601 56.7645 62.8733 69.5319 76.7898 84.7009 93.3240 102 .7231 112.9682 124.1354 136.3075 10% 1.0000 2 .100 0 3. 3100 4.6 410 6 .105 1 7.7156 9.4872 11.4359 13.5795 15.9374 18.5312 21.3843... 24 25 26 27 28 29 30 of Years Number Exhibit C-5 1.0000 2. 0100 3.0301 4.0604 5 .101 0 6.1520 7.2135 8.2857 9.3685 10. 4622 11.5668 12.6825 13.8093 14.9474 16.0969 17.2579 18.4304 19.6147 20. 8109 22.0190 23.2392 24.4716 25.7163 26.9735 28.2432 29.5256 30.8209 32.1291 33.4504 34.7849 1% 1.0000 2.0200 3.0604 4.1216 5.2040 6.3081 7.4343 8.5830 9.7546 10. 9497 12.1687 13.4121 14.6803 15.9739 17.2934 18.6393 20.0121... 4.25 4.38 4.51 4.64 4.77 4.90 13% 576 1% 1. 0100 1.0201 1.0303 1.0406 1.0 510 1.0615 1.0721 1.0829 1.0937 1 .104 6 1.1157 1.1268 1.1381 1.1495 1.1 610 1.1726 1.1843 1.1961 1.2081 1.2202 1.2324 1.2447 1.2572 1.2697 1.2824 1.2953 1.3082 1.3213 1.3345 1.3478 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 2% 1.0200 1.0404 1.0612 1.0824 1 .104 1 1.1262 1.1487 1.1717 1.1951 1.2190... 0.9615 1.8861 2.7751 3.6299 4.4518 5.2421 6.0021 6.7327 7.4353 8. 1109 8.7605 9.3851 9.9856 10. 5631 11.1184 11.6523 12.1657 12.6593 13.1339 13.5903 14.0292 14.4511 14.8568 15.2470 15.6221 15.9828 16.3296 16.6631 16.9837 17.2920 4% 0.9524 1.8594 2.7232 3.5460 4.3295 5.0757 5.7864 6.4632 7 .107 8 7.7217 8.3064 8.8633 9.3936 9.8986 10. 3797 10. 8378 11.2741 11.6896 12.0853 12.4622 12.8212 13.1630 13.4886 13.7986... 3.8960 4.3635 4.8871 5.4736 6.1304 6.8660 7.6900 8.6128 9.6463 10. 8038 12 .100 3 13.5523 15.1786 17.0001 19.0401 21.3249 23.8839 26.7499 29.9599 13% 1.1300 1.2769 1.4429 1.6305 1.8424 2.0820 2.3526 2.6584 3.0040 3.3946 3.8359 4.3345 4.8980 5.5348 6.2543 7.0673 7.9861 9.0243 10. 1974 11.5231 13.0211 14.7138 16.6266 18.7881 21.2305 23.9905 27 .109 3 30.6335 34.6158 39.1159 577 0.9804 0.9612 0.9423 0.9238 0.9057... 0.1807 0.1599 0.1415 0.1252 0. 1108 0.0981 0.0868 0.0768 0.0680 0.0601 0.0532 0.0471 0.0417 0.0369 0.0326 0.0289 0.0256 13% 578 1% 0.9901 1.9704 2.9 410 3.9020 4.8534 5.7955 6.7282 7.6517 8.5660 9.4713 10. 3676 11.2551 12.1337 13.0037 13.8651 14.7179 15.5623 16.3983 17.2260 18.0456 18.8570 19.6604 20.4558 21.2434 22.0232 22.7952 23.5596 24.3164 25.0658 25.8077 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 . Benefits 10- 10- 810 Atlanta Engineering Depreciation 10- 10-815 Atlanta Engineering Insurance 10- 10-825 Atlanta Engineering Office supplies 10- 10-830 Atlanta Engineering Salaries and wages 10- 10-835. Telephones 10- 10-840 Atlanta Engineering Training 10- 10-845 Atlanta Engineering Travel and entertainment 10- 10-850 Atlanta Engineering Utilities 10- 10-855 Atlanta Engineering Other expenses 10- 10-860. Department Description 10- 00-500 Atlanta xxx Capital stock 10- 00- 510 Atlanta xxx Retained earnings 10- 00-600 Atlanta xxx Revenue 10- 00-700 Atlanta xxx Cost of goods sold—Materials 10- 00- 710 Atlanta xxx