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Chapter02: Analyzing and Recording Transactions Describe a ledger and a chart of accountsLet us take a look at some of the tools and processes that comprise an accounting system.When a company starts business, the accountants need to decide what types of accounts are used. Pretty much all companies need a Cash account. If the company makes sales on credit, it needs an Accounts Receivable account. Additionally, most companies have a Supplies inventory and then there might be a prepaid expense or more, Equipment and Accounts Payable. If you run a consulting business, you likely need a Unearned Consulting revenue account as well as a Consulting Revenue account. And then, all businesses incur a variety of expenses in the course of producing income. The types of expense accounts can vary widely from business to business, though you can imagine that most companies have Salaries, Insurance, Rent, Supplies, and Utilities expenses.The chart of accounts is the listing of all of the names of the accounts used or available to be used in the business, along with a pre-assigned numbering scheme used to organize them. Trying to order the accounts without a numbering scheme is incredibly difficult for a company that has several accounts. The numbering schemes can become quite sophisticated. In the example, note that the asset accounts all start with 1, the liabilities 2, and so on.Why do you think there are breaks in the numbering sequence? There could be a few different reasons: The primary one is that there is room left to insert additional accounts.The accounts are ordered as in the expanded accounting equation with assets first, then liabilities, followed by the equity accounts, which are Owner, Capital, Owner, Withdrawals, the revenue accounts, and finally the expense accounts.The ledger or general ledger is the summary of all of the accounts used in the business, along with record of the transactions posted to the accounts, as well as their balances.In today's digitized world, the ledger accounts reside within the framework of the accounting system. In a multi-department large company, there can be thousands of accounts that make up the ledger; in small businesses, there is potentially only a need for 20 to 30. Knowledge CheckQuestion 1of 1Which of the following statements are true?Select all that apply and click on SubmitDifferent companies will use different charts of accounts based on individual company need.The chart of accounts contains the balance of all the accounts in the ledger.The general ledger contains all of the accounts that a company uses, along with detail of the balances in those accounts.
The general ledger and the chart of accounts can be ordered in any sequence because they are not formal financial systems.