Chart of accounts (COA) is a list of the accounts used by an organization. The list can be numerical, alphabetic, or alpha-numeric.

The structure and headings of accounts should assist in consistent posting of transactions. Each nominal ledger account is unique to allow its ledger to be located. The list is typically arranged in the order of the customary appearance of accounts in the financial statements, profit and loss accounts followed by balance sheet accounts.

Contents

1 Nomenclature, classification and codification 2 Example o 2.1 Simple Chart of Accounts 3 Trial Balance 4 Types of accounts 5 See also

Nomenclature, classification and codification

{{Each account in the chart of accounts is typically assigned a name and a unique number by which it can be identified. (Software for some small businesses may not require account numbers.) Account numbers are often five or more digits in length with each digit representing a division of the company, the department, the type of account, etc. As you will see, the first digit might signify if the account is an asset, liability, etc. For example, if the first digit is a "1" it is an asset. If the first digit is a "5" it is an operating expense. A gap between account numbers allows for adding accounts in the future. The following is a partial listing of a sample chart of accounts.29=April 2011}}

Example
Simple Chart of Accounts
Group headings - Sales, Cost of Goods Sold, Direct Expenses, Administration Expenses, Selling Expenses, Distribution Expenses, Establishment Expenses, Financial Expenses Within each of these headings will be the individual nominal ledger accounts that make up the chart of accounts. Establishment expenses may consist of rent, rates, repairs

Balance Sheet Accounts Asset Accounts ---Cash, Bank Accounts, Accounts Receivable (Debtors), Prepaid Expenses, Inventory (Stock onHand), Land, Buildings, Vehicles & Equipment, Investments & Stocks, Accumulated Depreciation and Other Assets Liability Accounts ---Accounts Payable (Creditors), Credit Cards, Tax Payable, Employment Expenses Payable, Bank Loans,

Stockholders' Equity Accounts ---Common Stock (Share Capital), Retained Earnings (Revenue Reserves), Drawings Profit & Loss accounts

Revenue Accounts ---Sales Revenue, Sales Returns & Allowances, Sales Discounts, Interest Income,

Cost of Goods Sold Accounts---Purchases and sales Expense All sales Expense Purchase Returns & Allowances

Expense Accounts ---Advertising Expense, Bank Fees, Depreciation Expense, Payroll Expense, Payroll Tax Expense, Rent Expense, Income Tax Expense, Office Expense, Utilities Expense

Trial Balance
The trial balance is a list of the active general ledger accounts with debit and credit balances. A balanced trial balance does not guarantee that there are no errors in the nominal ledger entries.

Types of accounts

1. Asset accounts: represent the different types of economic resources owned by a business,

2. 3. 4. 5.

6.

common examples of Asset accounts are cash, cash in bank, building, inventory, prepaid rent, goodwill, accounts receivable[citation needed] Liability accounts: represent the different types of economic obligations by a business, such as accounts payable, bank loan, bonds payable, accrued interest.[citation needed] Equity accounts: represent the residual equity of a business (after deducting from Assets all the liabilities) including Retained Earnings and Appropriations.[citation needed] Revenue accounts or income: represent the company's gross earnings and common examples include Sales, Service revenue and Interest Income.[citation needed] Expense accounts: represent the company's expenditures to enable itself to operate. Common examples are electricity and water, rentals, depreciation, doubtful accounts, interest, insurance.[citation needed] Contra-accounts: Some balance sheet items have corresponding contra accounts, with negative balances, that offset them. Examples are accumulated depreciation against equipment, and allowance for bad debts against long-term notes receivable.

Revenue

http://en.wikipedia.org/wiki/Revenue

In business, revenue is income that a company receives from its normal business activities, usually from the sale of goods and services to customers. In many countries, such as the United Kingdom, revenue is referred to as turnover. Some companies receive revenue from interest, dividends or royalties paid to them by other companies.[1] Revenue may refer to business income in general, or it may refer to the amount, in a monetary unit, received during a period of time, as in "Last year, Company X had revenue of $42 million." Profits or net income generally imply total revenue minus total expenses in a given period. In accounting, revenue is often referred to as the "top line" due to its position on the income statement at the very top. This is to be contrasted with the "bottom line" which denotes net income.[2] For non-profit organizations, annual revenue may be referred to as gross receipts.[3] This revenue includes donations from individuals and corporations, support from government agencies, income from activities related to the organization's mission, and income from fundraising activities, membership dues, and financial investments such as stock shares in companies. In general usage, revenue is income received by an organization in the form of cash or cash equivalents. Sales revenue or revenues is income received from selling goods or services over a period of time. Tax revenue is income that a government receives from taxpayers. In more formal usage, revenue is a calculation or estimation of periodic income based on a particular standard accounting practice or the rules established by a government or government agency. Two common accounting methods, cash basis accounting and accrual basis accounting, do not use the same process for measuring revenue. Corporations that offer shares for sale to the public are usually required by law to report revenue based on generally accepted accounting principles or International Financial Reporting Standards. In a double-entry bookkeeping system, revenue accounts are general ledger accounts that are summarized periodically under the heading Revenue or Revenues on an income statement. Revenue account names describe the type of revenue, such as "Repair service revenue", "Rent revenue earned" or "Sales".[4]

Contents
[hide]

1 Business revenue o 1.1 Financial statement analysis 2 Government revenue 3 See also 4 Notes and references

[edit] Business revenue

Business revenue is income from activities that are ordinary for a particular corporation, company, partnership, or sole-proprietorship. For some businesses, such as manufacturing and/or grocery, most revenue is from the sale of goods. Service businesses such as law firms and barber shops receive most of their revenue from rendering services. Lending businesses such as car rentals and banks receive most of their revenue from fees and interest generated by lending assets to other organizations or individuals. Revenues from a business's primary activities are reported as sales, sales revenue or net sales. This includes product returns and discounts for early payment of invoices. Most businesses also have revenue that is incidental to the business's primary activities, such as interest earned on deposits in a demand account. This is included in revenue but not included in net sales.[5] Sales revenue does not include sales tax collected by the business. Other revenue (a.k.a. non-operating revenue) is revenue from peripheral (non-core) operations. For example, a company that manufactures and sells automobiles would record the revenue from the sale of an automobile as "regular" revenue. If that same company also rented a portion of one of its buildings, it would record that revenue as other revenue and disclose it separately on its income statement to show that it is from something other than its core operations.

[edit] Financial statement analysis

Main article: Financial statement analysis Revenue is a crucial part of financial statement analysis. A companys performance is measured to the extent to which its asset inflows (revenues) compare with its asset outflows (expenses). Net Income is the result of this equation, but revenue typically enjoys equal attention during a standard earnings call. If a company displays solid top-line growth, analysts could view the periods performance as positive even if earnings growth, or bottom-line growth is stagnant. Conversely, high income growth would be tainted if a company failed to produce significant revenue growth. Consistent revenue growth, as well as income growth, is considered essential for a company's publicly traded stock to be attractive to investors. Revenue is used as an indication of earnings quality. There are several financial ratios attached to it, the most important being gross margin and profit margin. Also, companies use revenue to determine bad debt expense using the income statement method. Price / Sales is sometimes used as a substitute for a Price to earnings ratio when earnings are negative and the P/E is meaningless. Though a company may have negative earnings, it almost always has positive revenue. Gross Margin is a calculation of revenue less cost of goods sold, and is used to determine how well sales cover direct variable costs relating to the production of goods.

Net income/sales, or profit margin, is calculated by investors to determine how efficiently a company turns revenues into profits....

[edit] Government revenue

Main article: Government revenue Government revenue includes all amounts of money received from sources outside the government entity. Large governments usually have an agency or department responsible for collecting government revenue from companies and individuals.[6] Government revenue may also include reserve bank currency which is printed. This is recorded as an advance to the retail bank together with a corresponding currency in circulation expense entry. The income derives from the Official Cash rate payable by the retail banks for instruments such as 90 day bills.There is a question as to whether using generic business based accounting standards can give a fair and accurate picture of government accounts in that with a monetary policy statement to the reserve bank directing a positive inflation rate the expense provision for the return of currency to the reserve bank is largely symbolic in that to totally cancel the currency in circulation provision all currency would have to be returned to the reserve bank and cancelled.

Journal entry http://en.wikipedia.org/wiki/Journal_entry

A journal entry, in accounting, is a logging of transactions into accounting journal items. The journal entry can consist of several items, each of which is either a debit or a credit. The total of the debits must equal the total of the credits or the journal entry is said to be "unbalanced". Journal entries can record unique items or recurring items such as depreciation or bond amortization. In accounting software, journal entries are usually entered using a separate module from accounts payable, which typically has its own subledger that indirectly affects the general ledger; journal entries directly change the account balances on the general ledger. Some data commonly included in journal entries are: Journal entry number; batch number; type (recurring vs. nonrecurring); auto-reversing; date; accounting period; and description. Typically, accounting software imposes strict limits on the number of characters in the description; a limit of about 30 characters is not uncommon. This allows all the data for a particular transaction in a journal entry to be displayed on one row. The balance sheet is a statement showing net worth on a particular date. Journal entries are used to record injections and ejections to such net worth. After recording the transactions through journal entries the revised balance sheet can be prepared. Suppose the financial position of a company is as follows:
Balance Sheet As on 19 July 2009 Liabilities Capital Bank Loan Amount 50000 20000 ---70000 ---Furniture A/c Cash A/c debit credit 2000 2000 Assets Machinery Building stock cash Amount 30000 25000 10000 5000 ---70000 ----

Some furniture is purchased for $ 2000 in cash so a journal entry is created:

After the above transaction the updated balance sheet would be:
Balance Sheet As on 19 July 2009 Liabilities Capital Bank Loan Amount 50000 20000 Assets Machinery Building furniture stock cash Amount 30000 25000 2000 10000 3000 ----

----

70000

70000

Journal entries are an easier means for perpetrating financial statement fraud than adjusting the subledgers. The former requires only a management override, while the latter requires collusion with other departments[1]. False journal entries figured prominently in the frauds at WorldCom, Cendant, and Xerox.

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Sample General Ledger Journal Entry

For the purpose to analyze sample general ledger journal entry first let us distinguish two steps of this concept, i.e.:

business transactions having an impact on the financial position of the business are first recorded in the general journal, which is one of the accounting prime entry books, then entries from general journal are posted to the general ledger, i.e. to the corresponding account, the universe of which composes general ledger.

This process is divided into 2 steps, since recording of business transactions directly to the general ledger accounts due to significant volume of transactions causes huge amount of mistakes and lost track of their corrections.

General Journal
General journal includes all the business transactions which are recorded in the chronological manner, i.e. day by day. Structure and form of general journal differs depending on the business needs, however there is a mandatory data to be present in any journal. This data is:

date of transaction; names of accounts which are debited and credited description of the transactions columns for debit and credit where exact figures of business transaction are recorded.

In the picture below you can see how the general journal looks like and what information is included there. Considering sample general ledger journal entry below each transaction will be first recorded into the general journal in the way as it is presented in the picture.

General Ledger
Next step to record any sample general ledger journal entry is to post transactions recorded in the general journal to the general ledger accounts. The accounts classify accounting data into certain categories, the main of which are:

Assets Liabilities Equity Revenue Expenses

We can use either T accounts, which have T form, with one side for Debit and one side for Credit. In practice of course there are no T accounts and several column general ledger format is used. In the picture below you can see how this forma looks like. The first column includes date, second column - description of transaction, third and fourth - debit and credit columns, and the last one - balance of the account after the transaction has been posted. Positive balance means debit, negative balance -means credit.

Sample General Ledger Journal Entry will be presented by analyzing several transactions performed by XYZ company.
We will be analyzing the following transactions of XYZ company in December of the year 2008:
o

o o o

1. December 15 - shareholders established XYZ company and invested cash of $12000. This is a trading company reselling furniture and also providing furniture maintenance services; 2. December 17 - Acquired on account land costing $15000 and building for cash $10000; 3. December 19 - acquired on account supplies costing $1200 and goods (furniture) for resale for $6000; 4. December 20 - Provided services to customers for cash, i.e. for $570

Sample General Ledger Journal Entry Process

Journalizing and posting 1st transaction: On December 15 shareholders established company XYZ by investing cash. First step is to journalize the transaction, i.e. record it in the general journal. The following entry is being done: D Cash $12000 C Share Capital $12000 In the picture below you can see how general journal entries look like. The next step of this sample general ledger journal entry is to post these entries to the according general ledger accounts, i.e. Cash and Share Capital. Here we are using multi-column general ledger format (not T accounts).

$12000 is debited to the Cash account of the general ledger and afterwards balance in the Cash account is calculated, which is $12000 on the debit side. Since Cash account

belongs to the assets category, its balance after the posting will be always on the debit side. The same amount of $12000 is credited to the Share Capital account and afterwards balance in this account is calculated. The balance is $12000 with a minus sign (we show it in the brackets), since it is credit balance. Share Capital account belong to the equity category and after the posting the balance of this account is always on the credit side.

Illustration of Journalizing and Posting - Transaction No. 1

Journalizing and posting 2nd transaction: On December 17 the company XYZ acquired on account (i.e. cash for the acquisition will be paid on the later agreed date after the purchase) land cost of which is $15000 and for cash building cost of which is $10000. The following entry is being done: D Land $15000 D Building $10000 C Accounts Payable $15000 C Cash $10000 In the picture below you can see how general journal entries look like. Please note that the entries for this transaction go below the journal entries of the previous transaction. The next step of this sample general ledger journal entry is to post these entries to the according general ledger accounts, i.e. Land, Building, Accounts Payable, Cash.

Here we are using multi-column general ledger format (not T accounts).

$15000 and $10000 are debited to the Land and Building accounts of the general ledger and afterwards balances in the Land and Building accounts are calculated, which are accordingly $15000 and $10000 on the debit side. Since Land and Building accounts belong to the assets category, their balances after the posting will be always on the debit side. $15000 is credited to the Accounts Payable account and afterwards balance in this account is calculated. The balance is $15000 with a minus sign (we show it in the brackets), since it is credit balance. Accounts Payable account belong to the liabilities category and after the posting the balance of this account is always on the credit side. $10000 is credited to the Cash account. Note that Cash account already contains data related to the previous transactions and has a balance of $12000. Afterwards balance in this account is calculated. The balance is $2000, which is the balance before posting this transaction decreased by credited amount of $10000.

Illustration of Journalizing and Posting - Transaction No. 2

Journalizing and posting 3rd transaction: On December 19 the company XYZ acquired on account supplies cost of which is $1200 and inventory for resale cost of which is $6000. The following entry is being done: D Supplies $1200 D Inventory $6000 C Accounts Payable $7200 In the picture below you can see how general journal entries look like. The next step of this sample general ledger journal entry is to post the's entries to the according general ledger accounts, i.e. Supplies, Inventory and Accounts Payable.

Here we are using multi-column general ledger format (not T accounts).

$1200 and $6000 are debited to the Supplies and Inventory accounts of the general ledger and afterwards balances in the Supplies and Inventory accounts are calculated, which are accordingly $1200 and $6000 on the debit side. Since Supplies and Inventory accounts belong to the assets category, their balances after the posting will be always on the debit side. $7200 is credited to the Accounts Payable account. Note that Accounts Payable account already contains data related to the previous transactions and has a credit balance of $15000. Afterwards balance in this account is calculated. The balance is $22200, which is the balance before posting this transaction increased by credited amount of $7200.

Illustration of Journalizing and Posting - Transaction No. 3

Journalizing and posting 4th transaction: On December 20 the como any XYZ provided services to the customers for $570 and the customers paid by cash. The following entry is being done:

D Cash $570 C Revenue $570 In the picture below you can see how general journal entries look like. The next step of this sample general ledger journal entry is to post these entries to the according general ledger accounts, i.e. Cash and Revenue. Here we are using multi-column general ledger format (not T accounts).

$570 is debited to the Cash account as an increase in Cash. Note that Cash account already contains data related to the previous transactions and has a balance of $2000. Afterwards balance in this account is calculated. The balance is $2570, which is the balance before posting this transaction increased by debited amount of $570. The same amount of $570 is credited to the Revenue account and afterwards balance in this account is calculated. The balance is $570 with a minus sign (we show it in the brackets), since it is credit balance. Revenue account after the posting will always be on the credit side.

Illustration of Journalizing and Posting - Transaction No. 4

So this was a comprehensive sample general ledger journal entry explaining how business transactions are recorded and classified in the accounting books.

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