Chart of Accounts

BERT YOUNG, PRINCETON UNIVERSITY PRESS

The AAUP Business Handbook >> Part Two: Accounting, Budgeting, and Financial Management >> Accounting

Introduction

The chart of accounts is the grouping of various accounts with similar characteristics used to present the financial picture of an organization. The two key instruments for analyzing a business are the balance sheet and the operating statement, often called the profit and loss (P&L) statement.

The balance sheet reflects the financial position of an organization at a certain point in time. The profit and loss statement measures the performance of an organization over a period of time.

Because of their small size some organizations may not see the need for a balance sheet. Without it, certain trends that may adversely affect the business may go unnoticed, such as increasing levels of inventory, accounts receivable, and accounts payable. It is extremely important to be in a position to monitor these critical areas on an ongoing basis.

Before we enumerate the various accounts needed in an organization, a brief discussion of the importance of numbering for the chart of accounts is necessary. For purposes of this illustration it will be kept simple, as the development of a numbering system can become quite detailed, depending on the needs of the organization. It is critical that management decides what information is wanted and how it is to be presented when developing the numbering system. Larger presses may want to consider an eight-digit account number, whereas smaller ones may be able to adequately segment their accounts with six digits or fewer.

An illustration of a possible account number structure is presented below. The balance sheet and its appropriate accounts will be presented first. It should be remembered that the accounts indicated below are intended as a guide and are not cast in stone, since an organization may have certain accounts that are unique to its operation.

The balance sheet consists of three basic types of accounts: assets (and their contra accounts: <offsets to properly value the asset account>), liabilities, and capital or equity. Outlined below is a listing of accounts by the major categories included on the balance sheet.

Balance Sheet

Below is a possible numbering system using an eight-digit account number, followed by the function of each number. A numbering system such as this will enable you to group accounts and formulate your financial statements according to your needs.

Digit 1 – Type of account

• Assets

• Liabilities

Digits 2 and 3 – Type of Asset or Liability

• Cash Accounts

• Accounts Receivable

• Property Plant & Equipment

• Accounts Payable

• Accrued Expenses

Digits 4, 5, 6, and 7 – Specific Balance Sheet Account

• Petty Cash

• Royalties Payable

Digit 8 – Division or Business Segment

• Reference Book Division

Balance Sheet Accounts

Current Assets

Cash

• Bank Accounts

• Short Term Investments < 1 year

• Petty Cash

Accounts Receivable

• Accounts Receivable: Trade

• < Reserve for Doubtful Accounts >

• < Reserve for Future Returns >

• Accounts Receivable: Investment Interest

• Accounts Receivable: Journals

• Accounts Receivable: Employees

• Accounts Receivable: Others

Inventories

• Bound Book Inventory

• < Reserve for Inventory Write-down >

• < Reserve for Inventory Shrinkage >

• Paper Stock

• Sheet Stock

• Work in Process

Other Assets

Prepaid Expenses

Author Advances

• < Reserve for Royalty Advance Write-offs >

Loans Receivable

Long-Term Investments

Investments > 1 year

Property Plant & Equipment

Land

Buildings

• < Accumulated Write-off: Buildings >

Building Improvements

• < Accumulated Write-off: Building Improvements >

Warehouse Equipment

• < Accumulated Depreciation: Warehouse Equipment >

Leasehold

• < Accumulated Leasehold Write-off >

Leasehold Improvements

• < Accumulated Write-off: Leasehold Improvements >

Computer Equipment

• < Accumulated Depreciation: Computer Equipment >

Furniture & Fixtures

• < Accumulated Depreciation: Furniture & Fixtures >

Automobiles

• < Accumulated Depreciation: Automobiles >

Current Liabilities

Accounts Payable: Trade

Accounts Payable: Other

Accrued Salaries

Accrued Vacations

Royalties Payable

Accrued Expenses

Taxes Payable

Deferred Income: Journals

Deferred Subsidies

Long-Term Liabilities

Reserve for Post-retirement Benefits

Mortgage Payable

Revolving Funds

Endowment Funds

Equity

Operating Fund Balance: Opening Balance

Operating Fund: Current Year Results

Profit and Loss Statement

The operating statement (profit and loss statement) consists primarily of two types of accounts: revenues and expenses. The primary source of revenues is derived from the sale of books and, in some presses, from the sale of journal publications. A secondary source of income is derived from the sale of subsidiary rights, such as translation rights, permission fees, serial rights, and book club sales.

Operating expenses are best defined as the expenses incurred by the various functional areas of the organization, such as the editorial, production, and marketing departments. The operating expenses chart of accounts will be presented primarily in the order of the financial operating statement, which is basically the format used in the annual AAUP statistical survey, beginning with revenues and followed by the operating expenses of the various functional areas found in a university press environment.

Digit 1 – Type of Account

• Sales & Related Accounts

• Cost of Sales

• Operating Expenses

• Other Income/Expense

Digits 2 and 3 – Functional Area or Department in Organization

• Editorial Department

Digits 4, 5, 6, and 7 – Expense Category

• Travel & Entertainment

Digit 8 – Business Segment

• Reference Book Division

Profit and Loss Accounts

Revenues

Gross Sales: Press-Owned Books

Gross Sales: Commissioned Books

Sales Adjustments

Sales Returns

Charge for Future Returns

Cost of Goods Sold

Paper, Printing & Binding (PP&B)

Inventory Write-down Expense

Plant Costs

Royalty Expense

Royalty Advance Write-off Expense

Commission Book Proceeds

Other Publishing Income

Translation Rights & Royalties

Reprint Royalties

Permission Fees

Serial Rights

Electronic & Audio Rights

Book Club Sales Income/Advertising Income

Operating Expenses

Editorial Acquisitions

Salaries

Personnel Recruiting

Readers Fees

Free Copies: Inventory Value

Free Copies: Postage

Series Editors Expenses

Travel & Entertainment

Dues & Subscriptions

Postage

Reference Materials

All Other

Copyediting

Salaries

Personnel Recruiting

Personnel Development

Freelance Copyedit: Fees

Freelance Copyedit: Expenses

Freelance Production

Freelance Proofreading Fee

Freelance Proofreading Expenses

Travel & Entertainment

Postage

All Other

Production & Design

Salaries

Personnel Recruiting

Personnel Development

Packagers: Copyedit

Freelance

Art Supplies

Design Show Fees

Reference Materials

Travel & Entertainment

Postage

Sheet Stock & Film Storage Costs

All Other

Marketing & Sales

Salaries: Marketing

Salaries: Sales

Personnel Recruiting

Sales Commissions

Travel & Entertainment

Exhibits Expense

Co-op Advertising

Direct Mail

Catalogs & Trade Advertising

Web-site Development & Maintenance

Freelance Expenses

Free Copies: Inventory Value

Free Copies: Postage

All Other

Note: Whether the cost of free copies should be included as a departmental expense or should be shown in the cost of goods section is open to debate. It is the opinion of this writer that it should be included as a departmental expense, thereby providing departmental accountability for a major expense item. When accounting for free copies, it might also be beneficial for inventory and postage costs to be captured separately. Since postage accounts for a significant portion of the total cost of free copies, you may want to evaluate or prioritize your shipping methods for various types of free copy requests to minimize shipping costs; for example, a free copy request received from an individual may be shipped by fourth-class postage rather than by priority mail.

Order Fulfillment (Internal)

Salaries: Order Processing

Salaries: Customer Service

Salaries: Credit & Collection

800 Toll Lines

Bad Debts & Collection Expense

Credit Card Fees

Other

Equipment & Supplies

Non-Capitalized Computer & Equipment Purchases

Depreciation of Computer

Forms, Supplies & Stationery

Warehouse and Shipping

Salaries

Shipping Supplies

Occupancy Costs

Rent

Building Depreciation

Real Estate Taxes

Mortgage Interest

Utilities

Maintenance & Repairs

Waste Removal

All Other

Equipment

Depreciation

Equipment Rentals

Equipment Maintenance

Equipment Repairs

Transportation Charges

Shipping Charges Out

Shipping Charged to Customers

Note: Make sure that shipping charges incurred on shipments to customers are fully recovered to avoid ending up in a net shipping expense position.

General Accounting and Administrative Expenses

All expenses that are general in nature to the operation of the organization and cannot be assigned to one of the aforementioned functional areas in the organization are to be classified as general and administrative expenses. There are, however, certain items that may be departmentalized, such as employee benefits. It may be beneficial, when trying to determine the total cost of an operation in the organization, to allocate these costs to the various departments by some means, such as by using a percentage based on head count or by making a more accurate allocation based on actual payroll charges. It should be noted that the charging of employee benefits to general and administrative expenses is the most prevalent method.

Employee Benefits

Salaries

Accrued Vacation Provision

Health Insurance Costs

Pension Expense

Payroll Taxes

Workman’s Compensation

Unemployment Insurance

Employee Tuition Reimbursement

Employee Assistance Programs

Post-retirement Benefits

Occupancy Costs (Excluding Fulfillment)

Rent Expense

Mortgage Interest

Depreciation of Buildings

Depreciation of Leasehold & Building Improvements

Real Estate Taxes

Utilities

Building Maintenance & Repairs

Other General and Administrative Costs

Non-Capitalized Computer & Equipment Purchases

Electronic Data Processing Costs

Telephone & Fax

Supplies

Professional Fees

Postage

Copying Costs

Membership Fees

General Insurance, such as Building, Inventory, Autos

Depreciation of Computer Equipment

Depreciation of Furniture & Fixtures

All Other

Non-book Publishing Income/(Expense)

Institutional Support

Non-parent Operating Grants

Endowment Income

Investment or Interest Income/(Expense)

Net Income/(Loss): Journal Programs

Sales Distribution Income

Journals

Some university presses, as part of their operation, engage in the publishing of journals. The accounts indicated below are intended as a guide for setting up the chart of accounts in connection with this activity. If an organization has a journals operation, the accounts indicated below should be incorporated into the main chart of accounts under a separate profit center so the net results can be shown in the non-book publishing income/(expense) section of the operating statement.

Balance Sheet

In addition to the normal accounts reflected on a balance sheet, one of the key accounts that should be reflected in connection with a journals operation is Unearned Subscriptions, also called Deferred Income. This account is important because it holds deferred income on the balance sheet until the journal, for which money has been previously received, is published.

Profit and Loss Statement

Revenues

Subscription Income

Advertising Income

List Rental Income

Royalties/Permission Fees Income

All Other

Cost of Sales

Composition, Printing & Binding

Provision for Inventory Write-down

Paper Costs

Domestic Postage

Foreign Postage

Operating Expenses

Editorial Salaries

Freelance Expenses

Travel & Entertainment

Advertising/Promotion Expenses

List Rentals

Commissions

Supplies

Postage & Courier Expense

Outside Fulfillment Expense

Overhead Allocation

The AAUP Business Handbook >> Part Two: Accounting, Budgeting, and Financial Management >> Accounting