A business will create a list of accounts called a chart of accounts where each account is assigned both a name and a number. A common practice is to have the accounts arranged in a manner that is compatible with the order of their use in financial statements. For instance, Asset accounts may begin with the digit ‘1’, liability accounts with the digit ‘2’, and shareholders’ equity accounts (excluding revenues and expenses) with the digit ‘3’. Each business will have a unique chart of accounts that corresponds to its specific needs. Assume Big Dog Carworks Corp. uses the following numbering system for its accounts:
|
100-199 |
Asset accounts |
|
200-299 |
Liability accounts |
|
300-399 |
Share capital, retained earnings, and dividend accounts |
|
400-499 |
Revenue accounts |
|
600-699 |
Expense accounts |
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