Rolando has just completed a course in accounting principles and has designed a Chart of Accounts for a small sole trader business,Barry's Bike Sales,which Barry has handed to you for comment.Barry also informs you that:
• he expects the business to expand,but still wants expense accounts listed in alphabetical order within each sub-category wherever possible
• he also intends to buy shares in Genesis Energy in the near future,but has no intention of Barry's Bike Sales becoming a limited company.
Barry has begun repairing and servicing bikes,as well as selling them.
a Look over the chart (below)and point out any errors or omissions.
b State 3 improvements that can be made to this chart.
c Explain 3 ways in which a Chart of Accounts may act as an internal control mechanism for a business.

Question

Quizplus · Accepted Answer

The Answer is a Errors and omissions:
• Bank loan should be in Liabilities section.
• No accumulated depreciation account for delivery vehicle.
• No accumulated depreciation account for equipment.
• Shares in Genesis Energy should be in Investments section.
• Accrued revenues should be in Current assets section.
• Prepaid expenses should be in Current assets section.
• Not possible for a non-company to have issued debentures.
• Delivery in should be in Cost of goods sold section.
• Delivery out should be in Selling and distribution section.
• Depreciation - delivery vehicle should be in Selling and distribution section.
b Improvements that can be made:
• Renumber General expenses so that there is room to add extra accounts in alphabetical order.
• Add a Repairs service income account (to record income from repairs).
• Renumber the starting numerals more logically as:
1 for Assets (instead of 3)
3 for Owner's equity (instead of 1)
4 for Revenues (instead of 5)
5 for Expenses (instead of 9).
c Three ways in which a Chart of Accounts may act as an internal control mechanism:
• new employees can refer to the chart to use account codes and enter transactions into the accounting system
• the codes can be used as a reference to retrieve transactions,and check their accuracy
• using code numbers enables speedy typing - it saves typing in the complete name of the account.

Rolando Has Just Completed a Course in Accounting Principles and Has