Asset Accounts in the Chart of Accounts
What Asset Accounts Should be in your Chart of Accounts?
A company's bookkeeping system is based on its chart of accounts. The chart of accounts essentially serves as a road map for the bookkeeper and accountant in the business firm. The chart of accounts makes it easier for the company to develop their financial statements at the end of the accounting cycle. Each account that is entered onto the chart of accounts is done so with a three-digit number followed by the account name. The first digit of the number signifies if it is an asset, liability, etc.
For example, if the first digit is a "1" it is an asset, if the first digit is a "3" it is a revenue account, etc.
The chart of accounts is organized by the order of each account's appearance in the financial statements, starting with the balance sheet and continuing with the income statement.
The first category on the chart of accounts is the Asset accounts. A business firm needs to personalize its chart of accounts and list . For example, there are accounts that will be on every company's chart of accounts such as Cash. Each business is different and when charting your asset accounts you need to think about all the things your business owns and expects to own during the coming year.
Every business usually has two basic account groups for assets on its chart of accounts. The two basic categories are current assets and long-term assets. Here is a sample chart of accounts for the asset accounts:
- Current Assets
- Cash: All companies have a cash account. You can list just this one account in the Chart of Accounts. Alternatively, you can break down your Cash Account into Cash in Checking and Cash in Savings. If you have cash for other purposes, then personal this category in whatever way you like. Petty Cash can also be listed here.
- Accounts Receivable: If you offer your customers store credit, the total amount of store credit outstanding is noted here.
- Inventory: If your company sells products, the value of your company's inventory is stated here. That value can be stated in terms of LIFO or FIFO inventory accounting.
- Long-Term Assets Plant and Equipment: Most companies have an account for plant and equipment. This category includes your buildings, land, and any equipment that you may have to produce your product.
The plant and equipment account, as well as other long-term asset accounts, will have an accumulated depreciation account shown with it in order for you to be able to keep track of how much of the value of that asset has been used up. Other types of long-term asset accounts you may have is an account for vehicles, an account for office furniture and fixtures, and an account for any leases your company may have.
Depending on the type of business you own, you may have more or fewer current and long-term assets. These are the basic asset accounts that most firms have on their chart of accounts.