The Concept of Corporate Charts of Account - Essay Example

For a new business, as well as an existing one, in order to continue will its operations, meeting customers' needs and its objectives of wealth maximization, there is a need to source funds (Steven, 2009). The two broad sources of funds are debt and equity which may vary depending on a number of factors, though not limited to the nature of the firm, its operations and its market repute. The combination of these two sources of funds refers to the firm’s capital structure. In order to achieve the stated objective of the firm's four employees as stated in the question, employee numbers are assigned i.e., employee no. 1, 2, 3, and 4.

The most appropriate rate of payment is monthly for easy accounting. To achieve this, the firm has to generate some accounts in its charts of accounts including payroll, salaries and wage payable accounts. These accounts are debit (Dr) and credit (Cr) as argued by (Donald, 2007). For effective operation of the business, tangible assets like plant and machinery, computers, motor vehicles equipment, furniture and fittings among others. According to FASB guidelines, all these assets are subject to depreciation due to wear and tear as they continue being used. Therefore, accounts like depreciation expense, accumulated depreciation as well as individual assets account should be prepared and included in the firm’s charts of accounts. An example of journal entries based on charts of accounts is shown below. Some of the internal controls which are aimed at reducing the firm's overall risk are compliance with laws and regulations, reliability of financial reporting and effectiveness as well as efficient operation of the firm.