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Leaning Objectives

I. Introduction

II. Chart of Account

III. Financial statement Format

IV. Accounting Policy


I. Introduction

In practice, financial statement format, chart of account for financial statements and accounting policy are different from companies to other companies, accounting standards to other accounting standards and countries to other countries.

 II. Chart of Account

 A chart of accounts (COA) is complete listing of every account in an accounting system. An account is a unique record for each type of asset, liability, equity, revenue, expense, gain and loss. In practice, the COA serves as the foundation for a company’s financial record keeping system.

COA contains the accounts’ names, brief descriptions and identification codes. Balance sheet accounts are listed first followed by the income statement accounts.

Balance sheet accounts
  • Assets
  • Owner’s (Stockholders’) Equity
  • Liabilities


Income statement accounts
  • Operating Revenues
  • Operating Expenses
  • Non-operating Revenues and Gains
  • Non-operating Expenses and Losses

III. Financial Statement Format

 Financial statement formats based on company forms such as sole proprietorship, partnership or corporation etc., and also it will be different types of business such as service, merchandising and manufacturing company.

Income Statement

 A company has the flexibility for its needs. For example, the categories of operating revenues and operating expenses might be further organized by business function and/or by company divisions.

Cost of service for Service Company may not be identified for accounting purpose because it may be difficult and spend time to separate between cost of service and operating expense, so cost of service may include in operating expense. The income statement for merchandising or manufacturing operation is very different from the statement for a service organization. In this income statement, the first line is for sale or revenue followed by subtraction of the cost of goods sold or manufactured.

Balance Sheet

 The balance sheet shows the assets, liabilities and equity of the business. The total assets must equal the summation of the total liabilities and equity. The first section of the balance sheet lists all assets. The next section lists the liabilities, or what the company owes to others. The final section is the equity, which is the difference between the total assets and total liabilities. But some companies may list first section for assets, second section for equity and final section for liabilities.

Different practices for listing assets are fixed asset first followed by current assets while other companies may list current assets first followed by fixed assets.

Different practices for listing liabilities are long term liabilities first followed by current liabilities while other companies may list current liabilities first followed by long term liabilities.

Statement of Cash Flow

 A cash flow statement shows the actual flow of cash in and out of the business. The cash flow statement can help investors and others determine if the business is having difficulty managing its cash flow. The format of the cash flow statement begins with cash flow from operating activities, followed by cash flow from investing activities and cash flow from financing activities. There are two methods for preparing operating activities-direct method and indirect method.

In practice, owner of business will require simple daily cash report.

IV. Accounting Policy

Accounting policies are the specific principles, rules and procedures implemented by a company and are used to prepare its financial statements.

Accounting policies will be set for the following items.

  • Inventory
  • Fixed asset
  • Revenue
  • Expense etc.

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