ACCOUNTING TERMS

ACCOUNTING is primarily concerned with the design of the system of records, the preparation of reports based
on the recorded data, and the interpretation of the reports. Accountants often direct and review the work of
bookkeepers.

ASSETS. Properties owned by a business enterprise.

EQUITIES. The rights or claim to the properties of a business enterprise

LIABILITIES. Debts of the business enterprise

EXPENSE. The amount of assets consumed or services used in the process of earning a revenue

REVENUE. The amount charged to customers for goods sold or services rendered to them.

NET LOSS. The final figure in the income statement when expenses exceed revenues

DIVIDEND. A distribution of earnings of a corporation to its owners.

ACCOUNTING EQUATION. The expression of the relationship between assets, liabilities, and capital and most
commonly stated as :

Assets= Liabilities + Capital

ACCOUNT. The form used to record additions and deductions for each individual asset, liability, capital, revenue,
and expense.

BALANCE SHEET. A list of assets, liabilities, and capital of a business entity as of a specific date, usually at the
close of the last day of a month or a year.

INCOME STATEMENT. A summary of revenue and expenses of a business entity for a specific period of time,
such as a month or a year.

ACCOUNTING TITLES

In recording the business transactions, it is desirable to use account titles which are acceptable, brief and
descriptive.

ASSETS
CURRENT ASSETS- are assets that can be realized one year after year-end date.

Cash- Coins, currencies and cash equivalents either on hand or deposited on the bank

Cash Equivalents- Are short terms investments that are readily convertible to known amounts of cash which are
subject to an insignificant risk to changes in value
Marketable Securities- Are stocks and bonds for purchased by the enterprise and are to be held for only a short
span of time or duration. They are usually purchased when a business has excess cash.

Trade and other Receivables- Include the amounts collectible from any of the following accounts :

A. Account Receivables- obligations or debts collectible from customers for services rendered or merchandise
sold to them on credit.
B. Notes Receivable- Obligations or debts collectible from customers and other persons for goods or services
or loan granted, evidenced by a promissory note issued by the customer
C. Interest Receivable- Amount of interest collectible on promissory notes received from customers and
clients.
D. Advances to Employees- Certain amount of money loaned to employees payable in cash or through salary
deductions.
E. Accrued Income- Income already earned but not yet received.

Inventories represent the unsold goods at the end of the accounting period, this is applicable only to a
merchandising business.

Merchandise Inventory- Merchandise or goods on hand and ready for sale at a profit.

Prepaid Expenses- include supplies brought for use in the business or services and benefits to be received by the
business in the future paid in advance.

Office Supplies on Hand- Stationery, ball pens, erasers, postage, stamps, and carbon papers still unused.

Contra-Asset Account- are accounts deducted from the related asset accounts.

A. Allowance for Bad Debts- losses due to uncollectible accounts

B. Accumulated Depreciation- represent the expired cost of property, plant, and equipment as a result of
usage and passage of time.

NON-CURRENT ASSETS- are assets that cannot realized one year after year-end date.

Long-Term Investments- are assets held by an enterprise for the accretion of wealth through capital distribution
such as interests, royalties, dividends, and rentals, for capital appreciation or for other benefits to the investing
enterprise such as those obtained through trading relationships. Investments are classified as long term when they
are intended to be held for an extended period of time.

Property, Plant and Equipment- are tangible assets that are held by an enterprise for use in the production and
supplies of goods or services, or for administrative purposes. These assets are expected to be used for more than one
period. Examples of property, plant, and equipment are the following:

Land- a piece of lot or real estate owned by the enterprise on which a building can be constructed for business
purposes.

Building- edifice or structure used to accommodate the office, store, or factory of a business enterprise in the
conduct of its operations.

Equipment- includes typewriter, air conditioner, calculator, filing cabinet, computer, electric fan, trucks, and cars
used by the business in its office comma store or factory. Specific account titles such as office equipment, store
equipment delivery equipment, transportation equipment, and machinery equipment.
Furniture and Fixture- include tables, chairs, carpets, curtains, lamp and lighting fixtures, and wall decors.
Specific account titles maybe used such as office furniture and fixtures, and store furniture and fixtures.

Tools- small items of equipment like pliers, hammers, screwdrivers, Etc.

Tangible Assets--anything that has long term physical existence acquired for use in the operation such as cash,
supplies and furniture and fixtures.

Intangibles Assets- -are long term resources of an entity, but have no physical existence. Identifiable, non-
monetary assets without physical substance held for use in the production or supply of goods and services, for rental
to others, or for administrative purposes, this include goodwill, patents, copyrights, licenses, franchises, trademarks,
brand names, secret processes, subscription list, and non-competition agreements.

TWO BROAD CATEGORIES OF INTANGIBLE ASSETS

1. LIMITED LIFE Intangible Asset

Patents- limited legal monopoly granted to an individual of firm to make use and sell its invention and to
exclude them by doing so.

Copyright- legal monopoly that protects publish or unpublished original work (for the duration of its
author’s life plus 50 years) from authorize duplication without due credit and compensation.

Goodwill- when a company buys another firm, anything it pays above and beyond the net value of the
target’s identifiable assets becomes goodwill on the balance sheet.

2. UNLIMITED LIFE Intangible Asset

Trademarks- registered with the appropriate authority to obtain legal ownership and protections rights.
Trademarks rights are granted usually for 7 to 20 years.

LIABILITIES

CURRENT LIABILITIES- liabilities that fall due within one year after year-end date.

A. Accounts Payable- Obligation or debts payable by the business to other parties for services acquired or
merchandise purchase on credits.

B. Notes Payable- Obligation or debts payable by the business to other parties evidenced by a promissory note
issued by the business

C. Loan Payable- is liability to pay the bank or other financing institution arising from funds borrowed by the
business from this these institutions payable within 12 months or shorter.

D. Unearned Revenues- represent obligations of the business arising from advance payments received before
goods or services are provided to the customer. This will be settled when certain goods or services are
delivered or rendered
 E. Accrued Liabilities- Include amounts owed to others for expenses already incurred but not yet paid.
Example of these are salaries payable, utilities payable, taxes payable, and interest payable.

-Utilities Payable- is an obligation to pay utility companies for services received from them. Example of
this are telephone services to PLDT, electricity to Meralco, and water services to Maynilad.

-Taxes and Licenses Payable- Business taxes and licenses due and payable to the government.

-SSS and Phil Health Payable- Amount withheld from salary of employees plus the company’s share due
and payable to the Social Security System.

NON-CURRENT LIABILITIES are long term liabilities or obligations which are payable for a period
longer than one year. Examples are Mortgage Payable and Bonds Payable

A. Mortgage Payable- is a long-term debt of the business with security or collateral in the form of real
properties. In case the business fails to pay the obligation, the creditor can foreclose or cause the mortgage
asset to be sold and use the proceeds of the sale to settle the obligation

B. Bonds Payable- is a certificate of indebtedness under the seal of a corporation, specifying the terms of
repayment and the rate of interest to be charged.

OWNER’S EQUITY

Capital is an account bearing the name of the owner representing the original and additional investment the owner
of the business increased by the amount of net income earned during the year. Is is decreased by the cash or other
assets withdrawn by the owner as well as the net loss incurred during the year.

Drawing represents the withdrawals made by the owner of the business in cash or other assets.

Income Summary is a temporary account used at the end of the accounting period to close income and expense
accounts. The balance of this account shows the net income or net loss for the period before it is closed to the capital
accounts. This will be taken up in Chapter 6 during the discussion of closing entries.

INCOME is the increase in resources resulting from performance of service or selling of goods.

- INCOME increase EQUITY

-Examples are Service Revenue for Service Entities; Sales for Merchandising and Manufacturing Companies.

Sales the principal revenue of both merchandising and manufacturing concerns in selling goods to customers.

Rent Income revenue earned by the apartment or condominium owners, building lessors, and market stallers.

Service Income revenue earned for selling services by motor repairs, advertising agencies, airlines, lawyers,
dentists, hospital, etc

Interest Income revenue earned for lending money

Commission Income revenue earned by real estate brokers, insurance agencies, travel agencies, etc
EXPENSE is the decrease in resources resulting from the operations of business
- EXPENSES decreases EQUITY in the accounting equation

- Examples of Expense Accounts are Salaries Expense, Interest Expense, Utilities Expense.

Salaries Expense amount paid for the services of employees working in the firm.

Supplies Expense caused of stationery, ball pens, erasers, postage, stamp, etc consumed or used

Advertising Expense cost of publications in the newspapers, calling cards, billboards, and propaganda thru radios
and televisions.

Delivery Expense or Freight Out cost of gasoline and oil used and related expense incurred in transporting goods
to customers

Depreciation Expense the allocation of the cost of certain assets like the building, office furniture and fixtures,
office equipment, etc., over their estimated useful life

Maintenance and Repair Expense cost of repairing and servicing certain assets like the building, office equipment,
delivery equipment.

Utilities Expense the cost of electricity and water consumed.

Rent Expense amount paid for the use of space for the store, working area or office of the business

Insurance Expense the insurance premium paid by the business.

Interest Expense the cost of borrowing money used by the business.

Telephone and Telegram amount paid to telephone bills and communications sent, etc,.