Chapter 4 - Davison Accounting

Test Review
Chart of Accounts
 You will need to know how to prepare a chart of
accounts (Study Application Problem 4-1)
 A=L+OE
& R-E=NP
 Remember that all of the accounts are put in
alphabetical order except assets (by last name of a
person’s name and first word of a business)
 Assets are put in order by liquidity (cash, accounts
receivable, supplies, prepaid insurance)
Assigning Account Numbers
 Assets
 Liabilities
 Owner’s Equity 300’s
 Revenue
 Expenses
 Accounts are arranged in a general ledger, account numbers
are assigned, and the chart of accounts is kept up to date by
accounting personnel
 Account numbers are assigned in 10’s to make for easy adding
of new accounts with the first account in a group starting with
10 (i.e. first asset…cash is 110)
 When adding a new account that falls between two existing
accounts, it is numbered with a 5 (i.e. existing liability
accounts of 210 and 220 new account 215)
 When adding a new account that falls after existing accounts,
it is number with the next 10 (i.e. last expense account is 540
Rent Expense…the next account Supply Expense will be 550)
 A group of accounts
 A ledger shows all of the transactions effecting one
account in one place
 The procedure for transferring information from a
journal entry to a ledger account
 Steps in posting
Write the entry date in the date column of the account
2. Write the journal page number
3. Write the debit/credit amount
4. Write the new account balance
5. Return to the journal and write the account number in
the ledger (not the journal)
 Must be the last step
Posting Continued
 If the previous account balance and the current
entry are both debits, the amounts are added
together and the new balance is a debit
 The two reasons for post reference numbers
 An account number is the journal’s Post. Ref. column
shows the account to which an amount is posted
 If posting is interrupted, the accounting personnel
know to resume posting on the line with a blank Post.
Ref. column in the journal
 The account number shows that posting of the entry is
Proving Cash
 Determining that the amount of cash agrees with the
accounting records
 Cash is always proved at the end of the month
Steps for Opening an Account
Write the account title
2. Write the account number