The chart of accounts must be tailored to an organization\'s specific needs. Dis

Question

The chart of accounts must be tailored to an organization's specific needs. Discuss how the chart of accounts for the following organizations would differ from the one presented for S&S in Table 2-2. Picture is below.

a. university

b. bank

c. government unit (city or state)

d. manufacturing company

e. expansion of S&S to a chain of two stores

Table 2-2 shows the chart of accounts Ashton developed for S&S.; Each account n is three digits long. The first digit represents the major account category urtber and indicates where TABLE 2-2 Sample Chart of Accounts for S&S; ACCOUNT CODE 100-199 Current Assets ACCOUNT ACCOUNT NAME CODE 400-499 ACCOUNT NAME 102 103 Savings Account Petty Cash Equity Accounts Common Stock Retained Earnings en 500-599Revenues 125 130 Allowance for Doubtful Accounts Notes Receivable Cash Sales Credit Sales Sales Returns & Allowances 160 170 180 200-299 Prepaid Rent Prepaid Insurance Noncurrent Assets Land Interest Revenue Miscellaneous Revenue 530 Cost of Goods Sold Wages Expense 210 612 230 235 240 Accumulated Depreciation-Buildings Equipment Accumulated Depreciation-Equipment Payroll Tax Expense Rent Expense an 630 Expense Furniture & Fixtures Accumulated Depreciation-Furniture &Fixtures; Other Assets ce Supplies Expense Bad Debt Expense ue is 640 650 701 702 703 710 250 n ExpensBuildings Depreciation Expense-Equipment Depreciation Expense-Furniture & Fixtures Income Tax Expense Liabilities Accounts Payable Wages Payable Employee Income Tax Payable FICA Tax Payable Federal Unemployment Tax Payable State Unemployment Tax Payable Accrued Interest Payable Other Liabilities 300-399 emo- 310 321 322 900-999 Summary Accounts 2 324 330 360 wing

Explanation / Answer

Part A)

University

1) There will be no accounts relating to equity. There will be a separate fund balances section for different forms of funds.

2) There will be different forms of funds (such as current funds for reporting operating expenses, loan funds for reporting loans extended to students, endowment funds for recording donations, etc.) and for each type of fund, seperate chart of accounts will have to be maintained. Further categorization of these funds into restricted and unrestricted may also be required.

3) The university may not maintain notes receivable in comparision to S&S. For installment payments expected to be received from the students, the university may maintain accounts receivable.

4) There would be a difference in types of revenues that will be reported in a university's income statement. In comparision to S&S, a univeristy sources of revenue will include tution and other fees (such as registration fees, application fees, lab fees, etc.). Other sources of revenue may be grants from government, gifts, etc.

5) The treatment of student loans and students deposits (to be refunded) will form an important part of the chart of accounts. Loans given to students will get reported as assets while deposits made by students will be treated as a liabilities.

___________

Part B)

Bank

1) In case of a bank, the major difference would arise on account of inventory. There will be no account related to inventory.

2) Accounts opened by customers would be treated as liabilities and loans extended to customers would be treated as assets. The classification of the loan as current or long term would depend on the period for which the loan has been granted by the bank.

3) Since, the bank is engaged in providing services and has infact no inventory, there wouldn't be any cost of goods sold (as is in the case of S&S).

4) Sources of revenue would include accounts such as investments, services charges, loans from other banks/financial institutions, etc.

___________

Part C)

Government Unit

1) There will be no accounts relating to equity. There will be a separate fund balances section for different forms of funds.

2) There will be different forms of funds (such as general fund, capital projects fund, special revenue fund, etc.) and for each type of fund, seperate chart of accounts will have to be maintained.

3) Major source of revenue for a government unit would be taxes, fees for licences and permits, penalties and fines.

4) Similar to a bank, there will be no inventory account in case of a government unit.

5) Accrual of taxes to be received may require creation of a seperate account in the name of "Taxes Receivable).

___________

Part D)

Manufacturing Company

1) A manufacturing company will ideally have different types of inventory accounts with different name representing their importance such as raw material inventory, work-in-process inventory and finished goods inventory. The total value of inventory will be split between these three categories.

2) For identification of revenue and expense for each product type and assets and liabilities with respect to each division, inclusion of more digits to the codes may be required as compared to S&S.

___________

Part E)

Expansion of S&S to a Chain of Two Stores

1) For identification of revenue and expense for each product type and also for each store inclusion of more digits to the codes may be required.

2) For identification of assets and liabilities with respect to each store, inclusion of more digits to the codes may be required.

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