CHART OF ACCOUNTS POLICY AND PROCEDURES POLICY: All ledger accounts will be assigned a descriptive account title and account number. PURPOSE: To define the methodology for assigning and maintaining the company's chart of accounts. SCOPE: These procedures apply to all ledger accounts used in the accounting department. PROCEDURES: 1.0 ACCOUNT DEFINITIONS: The chart of accounts is the backbone of the financial system. Transactions are coded with values representing distinct elements, each capturing a different aspect of the financial transactions. 1.1 Each account will be assigned titles and numbers that indicate specific ledger accounts. Accounts will be arranged in the same sequence in which they appear in the company's financial statements, within the following account ranges: Assets 1000-1999 Liabilities 2000-2999 Equity 3000-3999 Revenue 4000-4999 Expenses 5000-5999 1.2 Each account will be given a short title description that is brief but that allows the reader to quickly ascertain the purpose of the account. 2.0 ACCOUNT NUMBERING: Accounts will be numbered using a four digit sequence. In an account number, the location and the value of each digit shall have a specific meaning. Below is a general description of the meaning of the numbers in the company's chart of accounts. First Digit (_XXX): The first digit indicates the major classification of the account in the general ledger. The value of the digit indicates whether it is an asset, liability, owner's equity, or other kind of account. (i.e. 1000 indicates asset account) Second Digit (X_XX): The second digit indicates a subclassification of a major account and the value of the digit indicates a specific subclassification. (i.e. 1100 indicates Cash and Marketable Securities accounts) Third Digit (XX_X): The third digit indicates a further subclassification of each major account classification and the value of the digit indicates the specific subclassification. (i.e. 1110 indicates Cash account) Fourth Digit (XXX_): The fourth digit is used to provide a more detailed classification of the account and the value of the digit indicates a specific classification. (i.e. 1111 indicates Petty Cash account) 3.0 SAMPLE CHART OF ACCOUNTS Assets 1100 – CASH & MARKETABLE SECURITIES 1111 Cash in Checking 1112 Petty Cash 1120 Marketable Securities 1200 – RECEIVABLES 1210 Notes Receivable 1220 Accounts Receivable 1230 Interest Receivable 1240 Allowance for Uncollected Accounts 1300 – INVENTORY 1310 Raw Materials 1320 Work In Process 1330 Finished Goods 1500 – PREPAID EXPENSE ACCOUNTS 1510 Prepaid Insurance 1520 Prepaid Taxes 1530 Deposits 1600 - OTHER CURRENT ASSETS 1700 - FIXED ASSET ACCOUNTS 1710 Land 1720 Buildings 1722 Machinery and Equipment 1724 Furniture and Fixtures 1726 Vehicles 1728 Leasehold Improvements 1790 Accumulated Depreciation, Buildings 1792 Accumulated Depreciation, Machinery and Equipment 1794 Accumulated Depreciation, Furniture and Fixtures 1796 Accumulated Depreciation, Vehicles 1798 Accumulated Depreciation, Leasehold Improvements 1800 – INTANGIBLE ASSET ACCOUNTS 1810 Goodwill 1820 Patents 1900 - OTHER ASSET ACCOUNTS Liabilities 2100 – CURRENT LIABILITY ACCOUNTS 2110 Notes Payable 2120 Accounts Payable 2130 Wages and Salaries Payable 2135 Long-Term Debt Due Within One Year 2140 Interest Payable 2150 Dividends Payable 2160 Payroll Taxes Payable 2170 Property Taxes Payable 2180 Income Taxes Payable 2181 Federal Income Taxes Payable 2182 State Income Taxes Payable 2300 - LONG TERM LIABILITY ACCOUNTS 2310 Bank Loan 2320 Mortgage Payable Owner's Equity Accounts 3100 – Common Stock 3200 – Preferred Stock 3300 – Paid-in-Capital in Excess of Par Value 3400 – Treasury Stock 3900 – Retained Earnings 3910 Dividends Sales Accounts 4010 Sales Product A 4011 Sales Returns and Allowances Product A 4020 Sales Product B 4021 Sales Returns and Allowances Product B 4030 Sales Product C 4031 Sales Returns and Allowances Product C Cost Of Sales And Departmental Expense Accounts 5010 Cost of Materials Product A 5020 Cost of Materials Product B 5030 Cost of Materials Product C 5090 Material Price Variance Utilize the accounts below when applicable. Accounts are designated as follows: 5XXX – Cost of Sales 6XXX – Administration Expense Accounts 7XXX – Sales Expense Accounts X100 – Salaries X110 – Employer Taxes X120 – Employee Benefits X200 – Telephone X210 – Utilities X220 – Postage and Delivery X230 – Supplies and Small Equipment X240 – Dues and Subscriptions X250 – Travel X260 – Meals and Entertainment X310 – Rent, Building X320 – Rent, Equipment X330 – Repairs and Maintenance X340 – Depreciation X350 – Amortization X410 – Insurance X420 – Property Taxes X430 – Licenses X510 – Consulting Services X520 – Legal Fees X530 – Accounting Fees X540 – Seminars and Conferences X550 – Bank Fees X610 – Advertising and Promotions X620 – Printing Costs Other Expense Accounts 9110 – Interest Income 9120 – Dividend Income 9190 – Miscellaneous Income 9210 – Interest Expense 9220 – Penalties 9290 – Miscellaneous Expense --