Based on the accounting fundamentals, small businesses and large companies need to add structure to their accounts for how they will organize financial transactions. A company will do this by establishing a Chart of Accounts. This is a list of company accounts, typically identified by a number, with each generally beginning with their own "group." For example, Assets could start with group number 1xxx, then Liabilities with group number 2xxx, Equity group number 3xxx. As the accountant drills further into the category, it will have additional numbering to represent the area being tracked, for example under Assets, there will be Accounts Receivable identified as 121, and Notes Receivable as 131. It is important to establish a logical approach to numbering a chart of accounts as this will help all involved with the business accounting process.
The table below identifies a basic structure for organization of the accounts, how the accounts may be structured:
With the accounting structure in place, companies will keep track of their transactions (all the increases and decreases that occur in each account) with a ledger, sometimes referred to as general ledger. The ledger is where all accounts are tracked and it reflects the changes as well as the balances for each account. The ledger provides the detailed transactions that occur, where as the Chart of Accounts just provides the structure; where to find the particular details of transactions.
The table below identifies a basic structure for organization of the accounts, how the accounts may be structured:
Assets | Liabilities | Equity |
111 Cash | 211 Accounts Payable | 311 Common Stock |
121 Accounts Receivable | 221 Salaries Payable | 321 Retained Earnings |
131 Notes Receivable | 231 Interest Payable | 331 Dividents |
141 Office Supplies | 241 Unearned Revenue | |
151 Furniture | 251 Notes Payable | |
161 Building | 261 Not used | 171 Land | 271 Not used |
Revenues | Expenses |
411 Service/Goods Revenue | 511 Rent Expense |
421 Interest Revenue | 521 Salaries Expense |
531 Utilities Expense | |
541 Advertisement Expenses |
With the accounting structure in place, companies will keep track of their transactions (all the increases and decreases that occur in each account) with a ledger, sometimes referred to as general ledger. The ledger is where all accounts are tracked and it reflects the changes as well as the balances for each account. The ledger provides the detailed transactions that occur, where as the Chart of Accounts just provides the structure; where to find the particular details of transactions.