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ACCTG-DAY5-TOPIC CONTENT

CONTENT STANDARDS:
 TYPES OF MAJOR ACCOUNTS/ACCOUNTING ELEMENTS:
1. ASSETS
2. LIABILITIES
3. EQUITY/CAPITAL
4. INCOME EXPENSE

LEARNING COMPETENCIES:
1. Discuss the five major accounts
2. Cite examples of each type of accounts
3. Prepare a Chart of Accounts

PERFORMANCE STANDARDS:
1. Define, identify, and classify accounts according to the five major types

2. Define Assets, Liabilities, Owner’s Equity, Income and Expense


o Assets are the resources owned and controlled by the firm.

o Liabilities are obligations of the firm arising from past events which are to be settled in the future.

o Equity or Owner’s Equity are the owner’s claims in the business. It is the residual interest in the assets of
the enterprise after deducting all its liabilities.

o Income is the increase in economic benefits during the accounting period in the form of inflows of cash or
other assets or decreases of liabilities that result in increase in equity. Income includes revenue and gains.

o Expenses are decreases in economic benefits during the accounting period in the form of outflows of assets
or incidences of liabilities that result in decreases in equity.

The elements of financial statements:


Financial statements portray the financial effects of transactions and other events by grouping them into broad
classes according to their economic characteristics.
These broad classes are termed the elements of financial statements.

The elements directly related to financial position (balance sheet) are:


 Assets
 Liabilities
 Equity

The elements directly related to performance (income statement) are:


 Income
 Expenses

Definitions of the elements relating to financial position (as per IASB-International Accounting Standard Board)
 Asset –
An asset is a resource controlled by the entity as a result of past events and from which future economic
benefits are expected to flow to the entity.

 Liability –
A liability is a present obligation of the entity arising from past events, the settlement of which is
expected to result in an outflow from the entity of resources embodying economic benefits.
 Equity –
Equity is the residual interest in the assets of the entity after deducting all its liabilities

Definitions of the elements relating to performance


 Income –
Income is increases in economic benefits during the accounting period in the form of inflows or
enhancements of assets or decreases of liabilities that result in increases in equity, other than those relating to
contributions from equity participants.

 Expense –
Expenses are decreases in economic benefits during the accounting period in the form of outflows or
depletions of assets or incurrences of liabilities that result in decreases in equity, other than those relating to
distributions to equity participants.

Discuss the difference between Current Assets –VS- Non-Current Assets, and Tangible –VS- Intangible Assets.
 Current Assets - are assets that can be realized (collected, sold, used up) one year after year-end date.

Examples: include Cash, Accounts Receivable, Merchandise Inventory, Prepaid Expense, etc.

 Non-current Assets - are assets that cannot be realized (collected, sold, used up) one year after year-end
date.

Examples: include Property, Plant and Equipment (equipment, furniture, building, land), long term
investments, etc.

 Tangible Assets are physical assets, such as cash, supplies, and furniture and fixtures.

 Intangible Assets are non-physical assets, such as patents and trademarks

Discuss the account titles used for Asset Accounts.

Define each account and differentiate one from the other.


 Current Assets
- Cash is money on hand, or in banks, and other items considered as medium of exchange in
business transactions.

- Accounts Receivable are amounts due from customers arising from credit sales or credit
services.

- Notes Receivable are amounts due from clients supported by promissory notes.

- Inventories are assets held for resale

- Supplies are items purchased by an enterprise which are unused as of the reporting date.

- Prepaid Expenses are expenses paid in advance. They are assets at the time of payment and
become expenses through the passage of time.

- Accrued Income is revenue earned but not yet collected


- Short term investments are the investments made by the company that are intended to be sold
immediately

 Non-Current Assets
- Property, Plant and Equipment are long-lived assets which have been acquired for use in
operations.

- Long term Investments are the investments made by the company for long-term purposes

- Intangible Assets are assets without a physical substance. Examples include franchise and
copyright.

Liabilities
o Liabilities are the debts and obligations of the company to another entity.

Discuss the differences of Current vs. Non-Current Liabilities.

Current Liabilities
 Liabilities that fall due (paid, recognized as revenue) within one year after year-end date.

Examples include: Accounts Payable, Utilities Payable and Unearned Income.


 Non-current Assets are liabilities that do not fall due (paid, recognized as revenue) within one year after year-
end date.

Examples include: Notes Payable, Loans Payable, Mortgage Payable, etc.

Discuss the Account Titles used for Liability Accounts

Define each account and differentiate one from the other

Current Liabilities:
- Accounts Payable are amounts due, or payable to, suppliers for goods purchased on account or
for services received on account.

- Notes Payable are amounts due to third parties supported by promissory notes.

- Accrued Expenses are expenses that are incurred but not yet paid (examples: salaries payable,
taxes payable)

- Unearned Income is cash collected in advance; the liability is the services to be performed or
goods to be delivered in the future.

Non-Current Liabilities:
- Loans Payable-(long-term)
- Mortgage Payable

Owner’s Equity
Discuss what Owner’s Equity is.
Owner’s Equity - is the residual interest of the owner from the business. It can be derived by deducting liabilities
from assets.

Discuss the Account Titles used for Equity Account

Define each account and differentiate one from the other

Capital - is the value of cash and other assets invested in the business by the owner of the business.

Drawing - is an account debited for assets withdrawn by the owner for personal use from the business.

Income

Discuss what Income is

 Income - is the Increase in resources resulting from performance of service or selling of goods.

Discuss where Income increases and decreases in the accounting equation. Income increases equity.

Give examples of Income Accounts:


Service revenue for service entities,

Sales for merchandising and manufacturing companies

Expense

Discuss what Expense is


 Expense - is the decrease in resources resulting from the operations of business

Discuss where Expense increases and decreases in the accounting equation

 Expenses decreases Equity in the accounting equation

Give examples of Expense Accounts:

Salaries Expense, Interest Expense, Utilities Expense