Unit
4
Chart of Accounts and Formal
Financial Statements
 The recording process continued!
Chart of Accounts
 To help organize the expanded ledger, it is customary to
number the accounts in the ledger.
 A list of the ledger account names and numbers, called a
chart of accounts
 Each account in a ledger has a title and a number. Accounts
are placed in a ledger in numerical sequence so they may
be located quickly.
 The accounts in the ledger are numbered in the same order
as they appear on the balance sheet and income statement.
 Notice the gaps left between account numbers in case new
accounts need to be inserted.
 These numbers
are used for
identification
and reference,
particularly in
computer
systems.
 In computer accounting, the account number becomes a
numeric code and is used in place of the account title when you
journalize transactions.
 Only the number is entered on the keyboard.
The account name then automatically
appears on the screen.
 Most businesses have copies of their chart of accounts available
for their employees, as well as for outsiders such as auditors.
Account Form to Report Form
 The account form balance sheet lists the assets on the left side
and the liabilities and owner's equity on the right side.
Concept Review
 The account form balance sheet was essential to establishing
the concept:
Left Side
Right Side
 From this concept, the balance sheet equation was derived:
Assets
Liabilities
Owner’s Equity
 The balance sheet equation is an inflexible rule and forms
the basis of the double-entry accounting system.
However, the Balance Sheet does not
always appear in Account form!!!
It also appears in Report Form!
 In the report form balance sheet, the assets, liabilities, and
owner's equity are listed vertically.
 Important to remember that the Balance Sheet equation still
applies.
Facts to Remember
 For the report form balance sheet, dollar signs should be
placed as follows:
 beside the first figure in each column in both sections
of the statement; and
 beside the final total in both sections of the statement.
Report Form
From Trial Balance to Financial Statements
Income Statement
 since you must calculate the net income or loss for the accounting
period to complete the equity section of the balance sheet, the
income statement is prepared before the balance sheet.
Report Form or Formal Balance Sheet
The Equity
Equation
In Balance
Sheet form