The Chart of Accounts
The increases and decreases in accounting element as affected by a business transaction are recorded in a device called account name, account title or account. Each accounting element is composed of several accounts which describe the related economic transactions and events. To maintain uniform account name, the business must have a listing of all the accounts it uses to record economic transactions. This listing of all accounts is called “Chart of Accounts.”
The Chart of accounts is usually arranged in the financial statement order - that is, asset accounts first, followed by liability accounts, owner’s equity, revenues and expenses accounts. An example of chart of accounts could be listed as follows:
Description
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· Prepaid Supplies — various supplies which have been bought for use in the office but are still unused. Examples are unused coupon bonds, ink, ball pen, and janitorial supplies.
Noncurrent Assets — these are assets that do not meet the criteria of a current asset. Generally, they include tangible, intangible, operating and financial assets of a long-term nature.
• Long-term Investments — investments intended to be held for more than one year. Examples are investments in bonds, investments in stocks, investment to affiliates, etc.
• Land - the site owned by the business on which the business building is constructed. This plant asset is not subject to depreciation. All other plant assets are subject to depreciation.
• Building - the structure owned by the business that is used in the operation of the business.
• Furniture and Fixtures — long-lived items used by the business including store furnishings, such as showcases, counters, scales, containers, display racks, as well as furniture used for office purposes, such as desks, chairs, and cabinets.
• Equipment — consists of what generally might be called the machinery used in a business such as computers, delivery equipment of any sort, or machinery used in conveying, packing, sorting or altering the commodities handled.
• Accumulated Depreciation — the aggregate periodic costs of using a depreciable plant asset. In accordance with the systematic cost allocation principle, the
According to AASB 116 Property, plant and equipment held beyond the normal operating cycle of entity are deemed to be non-current assets. Here’s the extract from the report.
The value of fixed assets typically decreases over time. The amount of the decrease each year is accounted for and is called depreciation. Depreciation for the year is expensed on the income statement and added to the accumulated depreciation account on the balance sheet. So the value of the fixed assets on the balance sheet is reduced by the accumulated depreciation.
c. Depreciation is computed using the straight-line method over the asset’s estimated useful life, which is determined by asset category as follows: Buildings and improvements (5 – 40 years); Store fixtures and equipment (3 – 15years), Leasehold improvements (Shorter of initial lease term or asset life); Capitalized software (3 – 7 years).
| In Year 1, depreciation is $5,000 plus 15% of the asset’s outlayFrom Year 2, depreciation is either * 30% of the asset’s book value; or * if the asset’s book value is less than $6,500, depreciation is the asset’s book value (i.e. asset is depreciated to zero once book value < $6,500)
Depreciation is the loss in value of an asset / building over time due to wear and tear, physical deterioration and age. Depreciation is treated as an expense and is a line item on your income statement but must be applied only to the building and not the land (since land does not wear out over time). You will be able to depreciate the building over a period of 39 years using the Modified Accelerated Cost Recovery System (MACRS). IRS Publication 946 contains the rules and guidelines governing depreciation of non-residential or commercial property.
Long-term financing means a financing provided to an organization for a period longer than a year. This is done typically for companies who do not have enough capital or for potential home owners. Mortgages are considered long-term loans.
A change in one statement would affect the others. It is concluded the financial statements do have an interrelationship with each other and they must be understood with their interrelationship in order to be properly interpreted. The order should be to first the income statement, then the balance sheet, Retained Earnings Statement and finally the Statement of Cash Flows.
The type of depreciation method the Target Corporation uses is a straight-line method. Property and equipment is depreciated using the straight-line method over estimated useful lives or lease terms if shorter. “Target amortizes leasehold improvements purchased after the beginning of the initial lease term over the shorter of the assets' useful lives or a term that includes the original lease term, plus any renewals that are reasonably assured at the date the leasehold improvements are acquired” (Stock Analysis, n.d.).
1. Financial reporting purposes: straight line depreciation method is used for plant assets that have a
To prepare a comprehensive balance sheet and Single-Step Income Statement presented in good form and derived from a list of various accounts. The amounts relative to each account will be given and the student will learn to determine whether an account is a balance sheet account or a
5. Machinery was acquired at the beginning of the year. Depreciation recorded during the life of the machinery could result in (Page 1002)
Depreciation is the reduction in the value of certain fixed assets. It is a periodic reduction of fixed assets, usually done every year. Fixed assets are assets that add value to the company. Examples of fixed assets that can be depreciated are vehicles, buildings, machinery, equipment and fixture and fittings. The only fixed asset that is not depreciated is land, because it is not worn-out overtime, unless natural resources are being exploited. When a company buys a new fixed asset it doesn’t account for the full cost of it as one single large expense, instead the expense is spread over the life time of the asset. This is done by depreciating the asset. For example a company purchases a CNC router for €50,000 and will be used for five year. If they pay the full amount in the
Account groups : assets, liabilities, owners equity, revenue and expenses makes up all of the statement of financial position and statement of financial performance. They show us the budgets and also the profit/ loss.
Assets in the financial statement are always required and show useful information to investors and understand where the information comes from. For instance, accounts receivable net which the organization does not expect to collect all of the money it is due from all patients and insurers, (Finkler, S.A., Ward, D.M. & Calabrese, I.D., 2013). The bad debts become about of the money due. Furthermore, accounts receivables, net represents gross charges less an allowance for poor debts, and many contractual allowances established with those third party payers. Typically, an example of a bad debt would show charges of a large sum of money delivered from a hospital. Then, the contractual allowances from
Identifiable intangible assets with finite lives are carried at cost less accumulated amortization and adjusted for