Think of an account as an individual file in your filing cabinet. For example, the account called “Furniture” would list all of the amounts spent on office furniture. The amounts are arranged in chronological order with increases in the value of office furniture on the left-hand (debit) column and decreases in the value on the right-hand (credit column). Example This example shows the appearance of the account named “Furniture”.
Assets
An asset gives the value of things owned by the business. People or businesses that owe you money are your assets. Examples of assets are:
Liabilities
A liability is the opposite of an asset. It is people or businesses to whom your business owes money. Examples of liabilities are:
Income
Sales Income (Total Income) This is the total income for all sales of goods or services provided after taxes have been deducted. The bookkeeper might decide to keep different accounts for different types of sales – e.g. “Car Sales”, “Caravan Sales”. Non-Operating Income This section is for income that is not directly related to the day-to-day operation of the business. Suppose the business invests surplus funds or rents out surplus office space. The income from this type of venture would be classified as “Non-operating Income”. Expenses
Expenses are those monies that you pay or bills that you receive for goods or services received – again, after tax has been deducted. Cost of Sales If a cost can be related directly to a particular sale or to a service rendered then it is classified as a “cost of goods sold” or COGS. Take, for example, a pair of shoes sold. Cost of sales expenses would include the wholesale cost of the shoes, freight costs, commissions paid, etc. Operating Expenses These are more general expenses that are difficult to relate to a particular sale. Examples are phone costs, bank charges, etc. Non-Operating Expenses There might be some costs that are not directly related to the day-to-day profitability of the business. Interest on loans and income tax are just two examples of such expenses. Equity
The owner probably invested a large sum of money to start the business going. If the business is ever sold, he or she would expect to be repaid this investment. Hopefully, the business will make a profit each year and this amount will be added to the amount owed to the owner. Operating Equity Profits accumulated each year are owed to the owner and appear on the right-hand column of this account. Amounts that the owner (proprietor) has taken out of the business (drawings) appear on the left-hand column of this account. Financing Equity This is the capital that the owner invests into the company . This investment normally happens at the start-up of the business but it can also happen at a later stage. The Chart of Accounts
This is the complete list of accounts being used by the business. Some bookkeepers decide to create their own accounts and the chart of accounts would only show the actual accounts that are used in the business. The bookkeeper might decide to use the default chart of accounts provided by the software package Express Accounts. Whatever the choice, it is important that the bookkeeper feel free to add new accounts to match the requirements of the business. Some notes in this regard are:
Express Accounts Uses the following Default Chart of Accounts : The default chart of accounts is the list of accounts that you start with. It is very easy to add new accounts, and this should be done to make your list more relevant to your business. Unused accounts do not appear in reports and will not “clutter” the system.
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