Specifications

Computer Tutorial 3 Lesson 1  5
TOPIC 1.3
The chart of accounts
A chart of accounts is a logical structure of account numbers designed to make it easier and
faster to look up an account in the general ledger. A chart of accounts is basically a table of
contents for a general ledger. For a complex general ledger with multiple account numbers, a
chart of accounts is a necessity.
In designing a general ledger for either a manual or computerized system, a good place to
start is to outline a chart of accounts. One effective approach is to go through all the items in
the balance sheet first, starting with current assets, and assign an account number to each
item. After all the items on the balance sheet have been assigned account numbers, you then
go through the income statement and assign account numbers to each item, starting with
revenues. This has two benefits: it facilitates the construction of financial statements and
makes it easier to locate any given account. It is also recommended that each major category
of accounts (assets, liabilities, shareholders’ equity, revenues, and expenses) be allotted a
separate number series.
Because the balance sheet usually shows aggregated information, it is important to analyze
each item and, if necessary, assign multiple accounts to an item on the balance sheet. For
example, it may be necessary to separate cash into various components, such as petty cash
and the different bank accounts, with a unique account number assigned to each to facilitate
bank reconciliation. Since it may be necessary to add more account numbers, it is a
recommended practice to space out the account numbers. The gap between account numbers
allows accounts to be added without a complete reorganization of the chart of accounts. For
example, you could assign the account number 1000 to petty cash, 1050 to a chequing
account, 1100 to a U.S. dollar account, and 1150 for marketable securities. Reorganizing the
chart of accounts is a complicated and time-consuming process and should be avoided, if
possible.
The following Sample Company Ltd. chart of accounts is used throughout this tutorial. Note
that only part of the chart is reproduced — several columns to the right are excluded so that
you can read the account numbers and descriptions more clearly. Note also that divisions and
regions are not shown. Other accounts will be added as you work through the tutorial.