See also:
Problems in Chart of Account Design
Complex COA Number for SGA Expenses
Example Chart of Accounts for Selling General and Administrative
Account Reconciliation
Account Reconcilement Definition
Chart of Accounts Defined
The chart of accounts (COA) is a listing of the general ledger accounts used by an organization to record transactions. For example, the accounts may be labeled in a numeric, alpha or alpha-numeric manner depending on the preference of management and the limitations of the accounting software. Today accounting software can accommodate most formats. In addition, list the accounts in the order that they appear on the financial statements; balance sheet accounts first, then income statement accounts.
The requirements of a company’s standard chart of accounts are one of the most important factors in software selection decision process. Define the requirements of the general ledger chart of accounts during the “Needs Analysis Phase (NAP)” of system selection and design. Therefore, involve the NAP every member of the management team that will be relying on financial data to help them manage their area of responsibility. The chart of accounts format and the selection of accounts provide sufficient data to manage the business. But it must meet all of the requirements of appropriate regulatory agencies. In addition, it must avoid minutia. A basic accounting chart of accounts system will provide for efficient expansion/modification of the management information systems as managers’ needs change based on changes in the business environment.
Chart of Accounts Design
The driving force in the chart of accounts design should be management’s information requirements, and not for example, the IRS Form 1120. An example of factors to be considered when determining the chart of accounts design include the present or future need for:
• Departmental data
• Project data (Expense & Production/Billable Projects)
• Regional data
• Product line data
• Customer data
• Internal Revenue Service (i.e. details of travel & entertainment expenses, expenses eligible for research tax credits, and non-deductible expenses)
• Local taxing authority requirements, i.e.. location of property & equipment by taxing jurisdiction
• Primary profit drivers
• Measure strategic goals
• Other significant factors identified by management
Not all factors identified, will survive the final decision of the required composition of the financial data base. The factors identified which survive the cut, will determine the required number of fields and size of the account number, thus eliminating software that does not provide the required flexibility. The overriding goal is to keep the chart of accounts format simple, logical, and scalable.
General Ledger Chart of Accounts Numbering System
Once you have identified the chart of accounts structure, certain classes are generally followed to develop the specific account codes, as shown in the following sample chart of accounts below. Furthermore, the numbering of the accounts should incorporate some logic in order to make it easier for non-accountants to code transactions. For example, group the accounts by category (i.e.; overhead) then listed in alphabetical order.
1NNNNN..NN – Assets Assets are generally numbered in order of liquidity of assets, i.e. 11NNN..NN as Cash, 12NNN… NN as Accounts Receivable, and so on.
However there may be exceptions, as some industries, such as public utilities reserve the 11NNN..NN sequence for the cost of Property, Plant and Equipment, as such assets dominate the balance sheet.
2NNNNN..NN – Liabilities
3NNNNN..NN – Owners/Shareholders Equities
4NNNNN..NN – Revenues
5NNNNN..NN – Cost of Goods Sold & Services
6NNNNN..NN – Selling, and General & Administrative Expenses
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your chart of accounts concept is very nice….
How to calculate markup with selling price given example selling price 10 dollar while 25% on cost .what is cost
cost is 8 dollar
cause,
suppose, cost = X, then margin = 25X/100 (as, 25% on cost)
so, selling price (sp) = X+(25X/100)
so, solving the equation, you will get,
X = $8
margin = $2
SP = $10
Two Dif. things.
Selling price based on cost of goods. 30%. (mark on to cost). Cost 7.00. = sell of $9.10. cost x 30% add to cost = 9.10. profit dollars = 2.10. 30% based on COG
Selling price based on margin of profit. 30% (mark up from cost). Cost 7.00 = sell of $10.00. 7.00 /.70 = 10.00 profit dollars 3.00 = 30% based on selling price.
P/l reads selling price
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was having problems with my current chart of accounts, taken over by a previous accounts clerk,there was no defining structure and way too many accounts. Your example of a chart of accounts has helped so much in structuring my accounts , it makes allocations so much easier and I don’t have to page through numerous pages to find the appropriate account. Thanks so much , it was very helpful.
If you write clearly about Chart of Accounts Design it can be helpful for us.
I mean about Chart of Accounts Design idea. How to do it?
if it does What problem can face?
Thanks
How to calculate markup this selling price? I don’t clear.
You have to use “cost multipliers” to arrived at a selling price that will allow you to obtain your desired gross profit.
For Example:
Item Cost x 1.50=Selling Price (You will obtain a 33 percent gross profit).
Item Cost x 1.55=Selling Price. The merchant will realize 35 percent gross profit based on the selling price.
Item Cost x 1.67=Selling Price (40 percent Gross Profit or Gross Margin).
Item Cost x 2.00=Selling Price (50 percent Gross Profit based on Selling Price of item-not 100 percent). This is known as “keystone markup”. Easy to calculate.Double the cost of the item to arrive at Selling Price. The merchant will realize a 50 percent Gross Profit based on the Selling Price-not 100 percent. The markup may very well be 100 percent based on cost. You need to concentrate on Gross Profit. You will never see the word “MARKUP” on a financial statement. You will always see the term “GROSS PROFIT”.
Learn your multipliers. You can easily find a Gross Profit Multiplier Chart on the internet. Learn how to Price your merchandise profitably. Good Luck!!!