Reference no: EM13582962

During your first week on the job, as you review both prior balance sheets and income statements, you see no rhyme or reason for how the different line items on these two statements make any sense. For example, you see utility expenses for Plant 1 as account numbers 100-99, while utility expenses for Plant 2 are 2234-9998. You ask yourself whether this seems to be an orderly system of setting up accounts, both for posting of journal entries as well as subsequent analysis of results.

You also note that there seems to be no subsidiary journals or ledgers in the company's accounting systems-something you are familiar with in other places you have worked.

You decide to hold a meeting with your senior accountants to discuss this issue.

Discuss why a "make sense" chart of accounts is important. Specifically, how can setting it up well help the company's managers and vice versa.

Explain what criteria you would suggest that the managers use because you will want them to set up a much more orderly chart of accounts.

Explain what difficulties a company may encounter during the changeover from an old, outdated chart of accounts to a new chart of accounts.

Explain why setting up a series of subsidiary ledgers would make things easier/better for both the accounting managers as well as the users of the information reported.