A List of Asset Accounts That Should Be Included in Your Chart of Accounts - Our Guide
Every company - no matter large or small - requires a good bookkeeping system. The chart of accounts is a part of this system, serving as a roadmap for the bookkeeper or the accountant in the company. It allows them to record transactions in a consistent and accurate manner, which is necessary in order to generate financial statements. Asset accounts, together with liability accounts and owners’ equity accounts, are on a company’s balance sheet. These can help the company keep track of the income as well as stock investments, properties, and items such as company cars and office supplies.
The business’s chart of accounts needs to be personalized so that all the accounts related to the specific business are included. Accounts such as Cash or Accounts Receivable are applicable to every company’s chart of accounts. It is important to note that the structure of each business is different. Thus, you need to consider all the things that your business owns and expects to own in the following year when creating your own asset accounts. In general, companies have two primary account categories for assets on their chart of accounts, including current assets and long-term assets. This article will outline each group in detail.
Current Assets
Current asset accounts are for tracking the balance of assets that a company is expected to purchase, sell, or use up during its business operations before the end of the current fiscal year. Current asset accounts typically include the following:
// Cash:
As mentioned, every company has a Cash account. You can either list this one account in the Chart of Accounts or break down your Cash account into sub-categories: Cash in Checking and Cash in Savings. Moreover, this category can be personalized based on your needs. For example, you can list Petty Cash under this category as well.
// Accounts Receivable:
Accounts Receivable refers to the amount of money owed to the company by your debtors. For example, if you offer your customers store credit, then the total amount of unpaid store credit can be listed here.
// Inventory:
Inventory refers to raw materials, in-process products, or finished products that are soon to be ready for sale. The value of the company’s inventory is stated here, which can be stated in terms of either LIFO or FIFO inventory accounting.
// Prepaid Expenses:
Prepaid expenses account lists down expenses that have already been paid, though not necessarily used up. For example, insurance that is paid early in the month and gets used up in 30 days.
Long-Term Assets
Long-term assets can also be referred to as noncurrent assets. That is because they are normally on the balance sheet for more than a year. These are assets that are not intended to be turned into cash or be used up within one year. This also means that the asset’s value on the balance sheet may not demonstrate its current or market value. Long-term asset accounts typically include the following:
// Furniture and Fixtures:
Furniture and Fixtures account records the costs of furniture such as desks, chairs, and other office furniture. These are all the things that will decrease in value over time.
// Plant and Equipment:
There are many companies that have an account for Plant and Equipment. This account tracks the costs of buildings, land, and other equipment that you may have obtained to manufacture your goods.
// Accumulated Depreciation:
Long-term asset accounts will also have an Accumulated Depreciation account. This is so that you can keep an account of how much of the value of the specific asset has been used up. This account is considered as a contra-asset account and not a liability account. Accumulated Depreciation has a normal credit balance while other asset accounts have a normal debit balance.
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