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Chart of accounts, trial balance, adjusting entries

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1) What are the components of the chart of accounts?

2) What is the purpose of the numbering structure on a chart of accounts?

3) Why is the structure of the chart of accounts important?

4) Is the chart of accounts the same for every organization? Explain your answer.

5) When is the trial balance prepared?

6) What is the purpose of preparing a trial balance?

7) What does the trial balance tell you?

8) What does the trial balance not tell you?

9) What accounting assumptions necessitate the use of adjusting entries?

10) What are the differences between prepaids and accruals?

11) What are the different journal entries associated with booking prepaid insurance and unrecorded insurance?

12) What accounts are subject to adjusting journal entries?

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Solution Preview

For definitions, terms etc use has been made of
1) Financial Accounting by Horngren and Sundem
2) http://www.netmba.com/accounting/fin/process/

1) What are the components of the chart of accounts?

Chart of accounts is normally a numbered or coded list describing all account titles.

The major categories are:
Assets
Liabilities
Capital
Revenue
Expenses

Within these major categories are items like
Cash
Accounts Receivable
Paid-in capital etc

A typical chart of account looks like (http://www.sbaonline.sba.gov/gopher/Business-Development/Success-Series/Vol1/Prof/prof10.txt)

Assets
100-Cash in Banks
101-Petty Cash Fund
102-Accounts Receivable
103-Inventory
105-Materials and Supplies
107-Prepaid Expenses
108-Deposits

120-Land
121-Buildings
122-Accumulated Depreciation -- Buildings (Credit)
123-Tools and Equipment
124-Accumulated Depreciation -- Tools and Equipment (Credit)
125-Automotive Equipment
126-Accumulated Depreciation -- Automotive Equipment (Credit)
127-Furniture and Fixtures
128-Accumulated Depreciation -- Furniture and Fixtures (Credit)
130-Organization Expenses (to be amortized)

Liabilities
200-Accounts Payable
201-Notes Payable
205-Sales Taxes-Payable
206-FICA Taxes-Payable
207-Federal Withholding Taxes
208-State Withholding Taxes
209-Unemployment Taxes
220-Long-Term Debt-Mortgages Payable
221-Long-Term Debt-SBA Loan
225-Miscellaneous Accruals

Capital Accounts
For Corporations
300-Common Capital Stock
301-Preferred Capital Stock

For Proprietorships
300-Proprietorship Account
301-Proprietor's Withdrawals

305-Retained Earnings

Sales (Revenue) Accounts (Credits)
400-Retail Sales
401-Wholesale Sales
402-Sales-Service
405-Miscellaneous Income

Expenses (Debit)
500-Salaries and Wages
501-Contract Labor
502-Payroll Taxes
503-Utilities
504-Telephone
505-Rent
506-Office Supplies
507-Postage
508-Maintenance Expense
509-Insurance
510-Interest
511-Depreciation
512-Travel Expense
513-Entertainment
514-Advertising
515-Dues and Contributions
520-Miscellaneous Expenses

2) What is the purpose of the numbering structure on a chart of ...

Solution Summary

Answers to 12 Short Answer Questions on Accounts dealing with chart of accounts, trial balance, adjusting entries, differences between prepaids and accruals, different journal entries associated with booking prepaid insurance and unrecorded insurance

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Similar Posting

Adjusting Entries, Post T-accounts, Adjusted trial balance

Josh Stein started his own consulting firm, Astromech Consulting, on June 1, 2007. The trial balance at June 30 is as follows.

ASTROMECH CONSULTING
Trial Balance
June 30, 2007
Debit Credit
Cash $6,850
Accounts Receivable 7,000
Prepaid Insurance 2,640
Supplies 2,000
Office Equipment 15,000
Accounts Payable $4,540
Unearned Service Revenue 5,200
Common Stock 21,750
Service Revenue 8,000
Salaries Expense 4,000
Rent Expense 2,000
$39,490 $39,490

In addition to those accounts listed on the trial balance, the chart of accounts for Astromech also contains the following accounts: Accumulated Depreciation—Office Equipment, Utilities Payable, Salaries Payable, Depreciation Expense, Insurance Expense, Utilities Expense, and Supplies Expense.

Other data:
1. Supplies on hand at June 30 total - $980
2. A utility bill has not been recorded and will not be paid until next month - $180
3. The insurance policy is for a year.
4 $2,900 of unearned service revenue has been earned at the end of the month.
5. Salaries of $1,250 are accrued at June 30.
6. The office equipment has a 5-year life with no salvage value and is being depreciated at $250 per
month for 60 months.
7. Invoices representing $3,000 of services performed during the month have not been recorded as of June 30.

Instructions:
(a) Prepare the adjusting entries for the month of June.
06/30/07 Account title Amount
Account title Amount

06/30/07 Account title Amount
Account title Amount

06/30/07 Account title Amount
Account title Amount

06/30/07 Account title Amount
Account title Amount

06/30/07 Account title Amount
Account title Amount

06/30/07 Account title Amount
Account title Amount

06/30/07 Account title Amount
Account title Amount

(b) Post the adjusting entries to the ledger accounts. Enter the totals from the trial balance as beginning account balances. Use T accounts.

Cash Accounts Receivable

Prepaid Insurance Supplies

Office Equipment Accum Depreciation - Office Equip

Accounts Payable Utilities Payable

Salaries Payable Unearned Service Revenue

Common Stock Service Revenue

Salaries Expense Rent Expense

Depreciation Expense Insurance Expense

Utilities Expense Supplies Expense

(c) Prepare an adjusted trial balance at June 30, 2007.

ASTROMECH CONSULTING
Adjusted Trial Balance
June 30, 2007
Debit Credit
Account title
Account title
Account title
Account title
Account title
Account title
Account title
Account title
Account title
Account title
Account title
Account title
Account title
Account title
Account title
Account title
Account title
Account title
Formula Formula

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