Page 40 - Finance for Non-Financial Managers

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The Structure and Interrelationship of Financial Statements
kinds of income or expenses, in the interest of greater accuracy. It
would be a challenging task to keep them straight if they were just
lying around without any semblance of organization. 21
The chart of accounts is an organized, comprehensive list of
all those buckets. The buckets, in turn, are labeled with their
appropriate account number and arranged by the kind of data
they hold, so that accountants can quickly find the right bucket
in which to store the latest piece of data about a particular asset
or liability. These buckets are then arranged and rearranged
during the accounting process and their contents are counted
and checked—usually monthly—to produce reports that sum-
marize the data they contain.
Let’s take a quick look at the abbreviated chart of accounts
in Figure 2-5, to give you a quick idea what it might look like in
a typical company. We’ll discuss and define the major cate-
gories in the chart of accounts in Chapters 3 and 4, when we
talk about the basic financial statements. After your quick look,
you can forget what it looks like, as long as you remember its
importance in categorizing raw accounting data into useful
information.
Notice that there is a numbering convention used to help
accountants identify assets from liabilities and income from
expenses. There are endless schemes of account numbering,
Account
Account Description
Number
Assets
1000 Cash
1100 Short-term investments
1200 Accounts receivable—trade
1250 Allowance for uncollectible accounts
1500 Fixed assets
1510 Land and buildings
1520 Machinery and equipment
1600 Accumulated depreciation
1800 Deposits
1900 Long-term investments

Figure 2-5. Sample chart of accounts (continued on next page)