Accounting and Finance Foundations

Unit 5

Accounting and Finance Foundations Unit 5: Accounting Terminology 327

Accounting Terminology

Chapter 13

Student Guide

Lesson 13.5 The Chart of Accounts

The chart of accounts is a listing of accounts that consists of accounts representing the different parts of

the accounting equation (assets, liabilities, and stockholders’ equity) and accounts representing different

forms of revenue and expense (revenues, expenses, gains, and losses). The accounts representing the dif-

ferent parts of the accounting equation are called balance sheet accounts, while the accounts representing

different revenues and expenses are referred to as income statement accounts. These accounts reflect the

operations of a business.

The accounts are organized into ledgers. A ledger is a group of accounts. A general ledger contains all

accounts needed to prepare a financial statement. In order to keep all accounts in order, accounts are listed

in the chart of accounts and given an account number. Most charts of accounts are organized into five

general ledger divisions: [1] assets, [2] liabilities, [3] owner’s equity, [4] revenue, and [5] expenses.

The procedure for arranging accounts, assigning account numbers, and keeping records current is called

file maintenance. Account numbers are assigned based on the account’s location in the general ledger. For

example, the first digit of an asset account is 1; liabilities, 2; owner’s equity, 3; revenue, 4; and expenses,

5. Existing accounts are numbered by 10s so new accounts can easily be added.