Tag Archives | expenses

Standard Chart of Accounts

See Also:
Chart of Accounts (COA)
Problems in Chart of Accounts Design
Complex Number for SGA Expenses

Standard Chart of Accounts

In accounting, a standard chart of accounts is a numbered list of the accounts that comprise a company’s general ledger. Furthermore, the company chart of accounts is basically a filing system for categorizing all of a company’s accounts as well as classifying all transactions according to the accounts they affect. The standard chart of accounts list of categories may include the following:

The standard chart of accounts is also called the uniform chart of accounts. Use a chart of accounts template to prepare the basic chart of accounts for any subsidiary companies or related entities. By doing so, you make consolidation easier.

Organize in Numerical System

Furthermore, a standard chart of accounts is organized according to a numerical system. Thus, each major category will begin with a certain number, and then the sub-categories within that major category will all begin with the same number. If assets are classified by numbers starting with the digit 1, then cash accounts might be labeled 101, accounts receivable might be labeled 102, inventory might be labeled 103, and so on. Whereas, if liabilities accounts are classified by numbers starting with the digit 2, then accounts payable might be labeled 201, short-term debt might be labeled 202, and so on.


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Number of Accounts Needed

Depending on the size of the company, the chart of accounts may include either few dozen accounts or a few thousand accounts. Whereas, if a company is more sophisticated, then the chart of accounts can be either paper-based or computer-based. In conclusion, the standard chart of account is useful for analyzing past transactions and using historical data to forecast future trends.

You can use the following example of chart of accounts to set up the general ledger of most companies. In addition, you may customize your COA to your industry by adding to the Inventory, Revenue and Cost of Goods Sold sections to the sample chart of accounts.

SAMPLE CHART OF ACCOUNTS

Refer to the following sample chart of accounts. Each company’s chart of accounts may look slightly different. But if you are starting from scratch, then the following is great place to start.

1000 ASSETS

1010 CASH Operating Account
1020 CASH Debitors
1030 CASH Petty Cash

1200 RECEIVABLES

1210 A/REC Trade
1220 A/REC Trade Notes Receivable
1230 A/REC Installment Receivables
1240 A/REC Retainage Withheld
1290 A/REC Allowance for Uncollectible Accounts

1300 INVENTORIES

1310 INV – Reserved
1320 INV – Work-in-Progress
1330 INV – Finished Goods
1340 INV – Reserved
1350 INV – Unbilled Cost & Fees
1390 INV – Reserve for Obsolescence

1400 PREPAID EXPENSES & OTHER CURRENT ASSETS

1410 PREPAID – Insurance
1420 PREPAID – Real Estate Taxes
1430 PREPAID – Repairs & Maintenance
1440 PREPAID – Rent
1450 PREPAID – Deposits

1500 PROPERTY PLANT & EQUIPMENT

1510 PPE – Buildings
1520 PPE – Machinery & Equipment
1530 PPE – Vehicles
1540 PPE – Computer Equipment
1550 PPE – Furniture & Fixtures
1560 PPE – Leasehold Improvements

1600 ACCUMULATED DEPRECIATION & AMORTIZATION

1610 ACCUM DEPR Buildings
1620 ACCUM DEPR Machinery & Equipment
1630 ACCUM DEPR Vehicles
1640 ACCUM DEPR Computer Equipment
1650 ACCUM DEPR Furniture & Fixtures
1660 ACCUM DEPR Leasehold Improvements

1700 NON – CURRENT RECEIVABLES

1710 NCA – Notes Receivable
1720 NCA – Installment Receivables
1730 NCA – Retainage Withheld

1800 INTERCOMPANY RECEIVABLES

 

1900 OTHER NON-CURRENT ASSETS

1910 Organization Costs
1920 Patents & Licenses
1930 Intangible Assets – Capitalized Software Costs

2000 LIABILITIES

 

2100 PAYABLES

2110 A/P Trade
2120 A/P Accrued Accounts Payable
2130 A/P Retainage Withheld
2150 Current Maturities of Long-Term Debt
2160 Bank Notes Payable
2170 Construction Loans Payable

2200 ACCRUED COMPENSATION & RELATED ITEMS

2210 Accrued – Payroll
2220 Accrued – Commissions
2230 Accrued – FICA
2240 Accrued – Unemployment Taxes
2250 Accrued – Workmen’s Comp
2260 Accrued – Medical Benefits
2270 Accrued – 401 K Company Match
2275 W/H – FICA
2280 W/H – Medical Benefits
2285 W/H – 401 K Employee Contribution

2300 OTHER ACCRUED EXPENSES

2310 Accrued – Rent
2320 Accrued – Interest
2330 Accrued – Property Taxes
2340 Accrued – Warranty Expense

2500 ACCRUED TAXES

2510 Accrued – Federal Income Taxes
2520 Accrued – State Income Taxes
2530 Accrued – Franchise Taxes
2540 Deferred – FIT Current
2550 Deferred – State Income Taxes

2600 DEFERRED TAXES

2610 D/T – FIT – NON CURRENT
2620 D/T – SIT – NON CURRENT

2700 LONG-TERM DEBT

2710 LTD – Notes Payable
2720 LTD – Mortgages Payable
2730 LTD – Installment Notes Payable

2800 INTERCOMPANY PAYABLES

2900 OTHER NON CURRENT LIABILITIES

3000 OWNERS EQUITIES

3100 Common Stock
3200 Preferred Stock
3300 Paid in Capital
3400 Partners Capital
3500 Member Contributions
3900 Retained Earnings

4000 REVENUE

4010 REVENUE – PRODUCT 1
4020 REVENUE – PRODUCT 2
4030 REVENUE – PRODUCT 3
4040 REVENUE – PRODUCT 4
4600 Interest Income
4700 Other Income
4800 Finance Charge Income
4900 Sales Returns and Allowances
4950 Sales Discounts

5000 COST OF GOODS SOLD

5010 COGS – PRODUCT 1
5020 COGS – PRODUCT 2
5030 COGS – PRODUCT 3
5040 COGS – PRODUCT 4
5700 Freight
5800 Inventory Adjustments
5900 Purchase Returns and Allowances
5950 Reserved

6000 – 7000 OPERATING EXPENSES

6010 Advertising Expense
6050 Amortization Expense
6100 Auto Expense
6150 Bad Debt Expense
6200 Bank Charges
6250 Cash Over and Short
6300 Commission Expense
6350 Depreciation Expense
6400 Employee Benefit Program
6550 Freight Expense
6600 Gifts Expense
6650 Insurance – General
6700 Interest Expense
6750 Professional Fees
6800 License Expense
6850 Maintenance Expense
6900 Meals and Entertainment
6950 Office Expense
7000 Payroll Taxes
7050 Printing
7150 Postage
7200 Rent
7250 Repairs Expense
7300 Salaries Expense
7350 Supplies Expense
7400 Taxes – FIT Expense
7500 Utilities Expense
7900 Gain/Loss on Sale of Assets

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standard chart of accounts

Originally posted by Jim Wilkinson on July 24, 2013. 

52

Job Costing

Job Costing Definition

Job costing is defined as a method of recording the costs of a manufacturing job, rather than process. With job costing systems, a project manager or accountant can keep track of the cost of each job, maintaining data which is often more relevant to the operations of the business.

Job Costing Meaning

Job costing, generally, means a specific accounting methodology used to track the expense of creating a unique product. Due to the fact that certain projects, such as construction, require different operations, accountants use this methodology to trace the expenses of each job in order to use this information for analysis and tax needs. Job costing forms have spaces to include direct labor, direct materials, and overhead.

Costs stay in the work-in-process account throughout the job. When the job is finally completed, they are transferred to the finished goods account. By using this method, accountants can make sense of complicated jobs which are moving towards the process of completion.

Indirect costs, like overhead, are applied as a fraction of direct costs. This is usually done in one of two ways: an association with labor hours or using activity based costing. This way, either through use of labor or certain tools, overhead will not be left out of the equation and a company can make sure to cover all essential costs using job costing.

Industries which produce products as jobs use this method. This includes job costing for construction, but goes much farther than just this. Shipping, auditing, maintenance and repair, installation, and any industry which creates products unique to each need. In this situation, job costing is often the most efficient method.

Job Costing Example

For example, Roy was once the curator of a large museum in the United States. Connecting with the science community on many levels, he has enjoyed his career. After some time, Roy decided he would make a career change. He has since started a company which provides maintenance work on historical works which reside in museums.

Roy has all the connections he needs for this business: other curators, archaeologists, and the entire community in his rolodex. After a little effort, he was able to connect with the people who perform this work. Roy will take the role of salesperson, but he needed to hire a team to perform operations. Roy is quite successful. His one concern, an area of ignorance for him, is how the bookkeeping will take place. So he hires an accountant, sets a meeting, and begins to learn about how his business will overcome this need.

The Most Efficient Accounting Methodology

The accountant shares that job costing will be, probably, the most efficient accounting methodology. Roy can keep track of the costs for each of his contracts by implementing this type of accounting. He will be able to find which items take more or less time to maintain. Additionally, he can make sure to create company profits by adding a margin on top of his costs. By using a job costing software, bookkeepers can run the system quite smoothly.

Roy can rest at ease with this accounting method. Knowing he can rely on his accountant, Roy begins to contact prospect customers and former peers. He has confidence that his business will be a success. He looks forward to gaining his first customer.

Job costing is just another way to know your economics or financials. Click here to download the Know Your Economics Worksheet to shape your economics to result in profit.

Job Costing

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Job Costing

See Also:

Implementing Activity Based Costing
Standard Costing System
Process Costing
Activity-based Costing (ABC) vs Traditional Costing
Absorption vs Variable Costing

3

Estimate Expenses for Annual Budget

Estimate Expenses for Annual Budget

How do you estimate expenses for annual budget in your company? Estimating expenditures for your business can be much more than just a guess. You can use data and previous experience to make an educated estimate, therefore, creating a much more realistic budget.

A budget is only successful if the expense and income estimates are feasible. This means that whatever you put on paper can only work, if it is possible. This is where making educated estimates is going to be much more useful than a simple guess.

Make Educated Estimates for Annual Budget

The steps you will need to take in order to make an educated estimate are as follows:

1. Start with what you know. If you know that the rent on the building will always be $1,000 this becomes an expenditure that you know. If you know that every month for the last three months you have spend $300 on supplies for productivity, then estimate that you will be doing the same.

2. If you anticipate increased/decreased expenses due to external economic factors, increased sales resulting from added expenses (ex: marketing), or other changes in expenses due to market/business factors (ex: insurance premium rate changes), it is recommended to use percentage changes if dollar figures are unknown.

3. Be sure to look at any previous data you have gathered where your expenditures are concerned. The more data you have, the better your educated estimate will be. This is because patterns are bound to repeat themselves.

4. Do not be afraid to over estimate. It is better to have a little extra ready for expenses, than to be short of it. For instance if know your communication expenses have been averaging $545.00 per month then up your expense to $600 per month.

5. Also do research of other business that are similar to yours. Ask other professionals who work in your business, or other businesses what they would estimate for their expenses.

Conclusion

Overall the best way to make educated estimates on your expenses is to know as much as you possibly can about what you need to pay out. Expenses are not always precise. They may be something that you will need to at least be prepared for. So if possible always allow a little extra for the unexpected. Because expecting the unexpected will help you to be prepared for those expenses you do not plan on.

These ideas should help you to be prepared for estimating for your expenses for your business when writing an annual budget. Keep in mind that the best budget allows for some flexibility.

Estimate Expenses for annual budget

See Also:
Capital Budgeting Methods
Zero-Based Budget
Cash Flow Projections
ProForma Financial Statements
Proforma Earnings

0

Below the Line

Below the Line Definition

Below the line is defined as income or expense in accounting which have no noticeable effect on company profits in the current period; however, it is an unofficial term. This term is used by people in-the-know who deal with above and below the line items and account for expenses regularly. They know where to place each in credit and debit fields of accounts.

Below the Line Explanation

Below the line explained, as an industry term, expenses which are not accounted for. These extraordinary expenses, perhaps relevant to another accounting period, are not important in this period. So, leave them out or put them below the line. You may include them in later statements.

Extraordinary expenses are those which are not related to the normal business operations of a company. these are excluded because they are one time and do not relate, overall, to company finances. An example of an extraordinary expense includes the sale of a warehousing plant for a manufacturer. Though these expenses or incomes should still be accounted for they should not be included in company financials. Rather, they should be added to income after company financials when regular operations are completed.

Accountants are the experts in what lies below the line or above the line. One should consult a trained accountant before passing judgement on this matter as it may have great consequences. Below the line accounting is more serious than it may appear.

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Below the Line Example

For example, Ken is the CEO of a company that sells electronic parts to wholesale clients. His business started as a function of the company he was then working in. It has grown quite successfully.

In this period, however, the recession damaged his business. Ken is worried that his investors will see this as a sign of weakness rather than a temporary issue.

Ken considers including the sale of one of his distribution warehouses in his company financials. This creates the appearance of sound income. Ken knows that this income is part of the below the line deductions list but feels that it will not matter in the long run.

After debating the issue for a while Ken decides not to include the income. It belongs on the below the line income statement. Ken knows he will come under the scrutiny of his investors but wants to remain honest. Though he may not feel the most comfortable with this, he can receive honest assistance from company stakeholders this way. Ken, ultimately, realizes that honesty is the best policy.

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below the line

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below the line

See Also:
Accounting Income vs. Economic Income
Tax Efficiency
Payroll Accounting
Accrual Based Accounting

1

Capitalize

See Also:
Capitalization
Capitalized Interest
Operating Capital
Lease Agreements
Capital Lease Agreement

Capitalize Definition

Capitalize defined is the act of classifying an expense or charge as a long term investment. This usually occurs for the purchase of long term assets like equipment.

Capitalize Meaning

If a company capitalizes its costs then it means that the charges do not show up on the income statement. However, the expense will show up as a depreciation expense. The total amount can also be seen on the balance sheet accounts. This means that a company has the ability to spread the amount of its expenses over time. This means that the net income for that company will have a smoothing effect over the life of the investment or asset, and in the first year artificially inflates the net income.

Capitalize Example

Beat Box Co. manufactures and assembles stereo systems. Recently, Beat Box has just leased a new piece of equipment for its operations. Instead of the company incurring the cost all at once it has decided to capitalize the cost over time. Thus, if the entire cost of the equipment was $1,000, and it depreciates over ten years then the entire amount of expense incurred each year on the balance sheet would be $100. Note that if the amount of income was $600 for the next ten years then the amount in the first year would be a loss of $400. However, because this amount was capitalized the company will show a profit of $500 each year for the next ten years.

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capitalize

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