1 | TYPES OF MAJOR ACCOUNTS & CHART OF ACCOUNTS

TYPES OF MAJOR ACCOUNTS

Classification of the Five Major Accounts

Statement of Financial Position Accounts Income Statement Accounts

(Real Accounts/Permanent Accounts) (Nominal Accounts/Temporary Accounts)
Assets Income
Liabilities Expenses
Equity

Financial statements – are the end product or main output of the financial accounting process

Components of financial statements

1. Statement of financial position
2. Income statement
3. Statement of comprehensive income
4. Statement of changes in equity
5. Statement of cash flows
6. Notes, comprising a summary of significant accounting policies and other explanatory notes

Statement of Financial Position

-is a statement that gives the financial condition of a business as of a given date
-another name for the balance sheet
-this is used by investors, creditors and other statement users to evaluate liquidity, solvency and the need for additional financing
for the business

Three elements of Statement of Financial Position

1. Assets – things owned by the business
-properties or rights on properties owned by the business
-assets are under the control and custodianship of the entity as a result of past transaction which will
generate income for the entity

*Acquired through: Purchase, an exchange, donation

2. Liabilities – debts owned by the business
-debts to be paid by the business to its suppliers of products for sale, or supplies to be used

*Settled through: cash payment, distribution of other assets, rendering of services, substitution with another liability, conversion of
liability into ownership interest of the lender in the borrower’s entity

3. Equity/Capital- investment of the owner in the business

ASSETS

Current Noncurrent
Cash and Cash Equivalents Property, plant and equipment
Financial assets at fair value through profit/loss Long-term investments
Trade and other receivables Intangible assets
Inventory Deferred tax assets
Prepaid expenses Other noncurrent assets

*Current Assets - items listed on a company's balance sheet that are expected to be converted into cash within one year. 
*Noncurrent Assets- long-term assets that a company expects to hold over one year and cannot readily be converted into cash.

1. Cash and cash equivalents

a. Cash – includes money and other negotiable instrument that is payable in money and acceptable by the bank for
deposit and immediate credit

Examples of cash:
● Cash on hand – includes bills, coins customer’s checks, cashier’s check, manager’s check, bank drafts and
money orders (not yet deposited)
● Cash in bank – this includes demand deposit and savings deposit which are unrestricted as to withdrawal
● Cash fund – set aside for current purposes such as petty cash fund, payroll fund, dividend fund, travel fund,
interest fund, tax fund
 b. Cash equivalents – short term and highly liquid investments that are readily convertible into cash and so near
maturity that they present insignificant risk of changes in value because of changes in interest rates. Only highly
liquid investments that are acquired three months before maturity can qualify as cash equivalents

Examples of cash equivalents:

● Three-month BSP treasury bill
● Three-year BSP treasury bill purchased three months before date of maturity
● Three-month time deposit
● Three-month money market instrument or commercial paper

*Treasury bill
*Time deposit
*Money Market instrument
*Commercial Paper

Note: Equity securities cannot qualify as cash equivalents because shares do not have a maturity date
2. Financial Assets at Fair value through profit or loss/Trading – investments that are readily realizable and intended to be
held for not more than one year; include stocks of companies listed in the stock exchange and are readily convertible
into cash
3. Trade and other receivables
a. Accounts Receivable – pertains to the claims of the business from customers for sales of products or rendering of
services. It is supported by oral or informal promises to pay
b. Notes Receivable – includes claims of the business from customers and third parties that are evidenced by formal
instruments of credit such as promissory notes. It is supported by written or formal promises to pay in the form of
promissory notes
c. Loan Receivable – a financial asset arising from a loan granted by a bank or other financial institution to a
borrower or client

*Allowance for Bad Debts/Allowance for doubtful accounts – this is a contra account against accounts receivable. The aggregate
amount of estimated losses from uncollectible accounts receivable

4. Inventory
a. Raw materials – are goods that are to be used in the production process
b. Factory or manufacturing supplies – are goods that has an indirect relationship to the end product
c. Work-in-Process/Goods-in-Process – goods that are still in process and not completely finished
d. Finished goods – good that are ready to sell and to be consumed
5. Prepaid Expenses – expenses already pad but not yet consumed
Examples: Prepaid Insurance, Prepaid Rent
6. Property, plant and equipment – tangible assets that are held for used in business which are expected to be used over
a period of more than one year

Examples: Land, land improvements, building, machinery, ship, aircraft, motor vehicle, furniture and fixtures, office
equipment, patterns, molds and dies, tools, book plates

*Accumulated Depreciation – the total amount of depreciation expenses recognized since the property was acquired and made
available for use

Note: Land is not subject to depreciation.

7. Long term investments

a. Investment in Equity Securities
Kinds of Dividends
⮚ Cash dividend – cash is distributed to the shareholders

⮚ Property dividends/dividends in kind – are dividends in form of property or noncash assets

⮚ Liquidating dividends – represent return on invested capital and therefore not an income (may
be in the form of cash of noncash assets)
⮚ Stock dividends/bonus issue– in the form of the issuing entity’s own shares
b. Investment in Associate – purchase of the equity securities of one entity by another entity to exert significant
influence over the investee entity
c. Investment in Subsidiary - purchase of the equity securities of one entity by another entity to exert control over the
investee entity

8. Intangible assets – an identifiable nonmonetary asset without physical substance

a. Patent – an exclusive right granted for an invention, which is a product or a process that provides, in general, a
new way of doing something, or offers a new technical solution to a problem
 Trademark/Brandname – a symbol, sign, slogan or name used to mark a product to distinguish it from other
b.
products
c. Copyright – an exclusive right granted by the government to the author, composer or artist enabling the grantee
to publish, sell or otherwise benefit from the literary, musical or artistic work
d. Franchise – an alternative to building "chain stores" to distribute goods that avoids the investments and liability
of a chain. The franchisor's success depends on the success of the franchisees.
e. Leasehold/Lease right – right acquired by the lessee by virtue of a contract of lease to use the specific property
owned by the lessor for a definite period of time in consideration for a certain sum of money in the form of rent
f. License - an authorization (by the licensor) to use the licensed material (by the licensee). In particular,
a license may be issued by authorities, to allow an activity that would otherwise be forbidden. It may require
paying a fee and/or proving a capability
g. Customer list – customer database containing the name, contract information, order history and other vital and
social statistics such as birth, death and even sickness
h. Computer software -  a generic term for organized collections of computer data and instructions, often broken
into two major categories: system software that provides the basic non-task-specific functions of the computer,
and application software which is used by users to accomplish specific tasks
i. Broadcasting license - a type of spectrum license granting the licensee permission to use a portion of
the radio frequency spectrum in a given geographical area for broadcasting purposes. The licenses generally
include restrictions, which vary from band to band.
j. Air rights - defined as the 'right to control, occupy, or use the vertical space (air space) above a property, subject
to necessary and reasonable use by neighbors and others (such as aircraft).' Generally, owning property
includes the right to use and develop that space above ground without interference.
k. Fishing right - provides the right to fish at a specific time and place
l. Goodwill – arises when earnings exceed normal earnings by reason of good name, capable staff and personnel,
high credit standing, reputation for fair dealings, reputation for superior products, favorable location and a list of
regular customers
9. Deferred Tax Assets – amount of income tax recoverable in future periods. It can refer to a situation where a business
has overpaid taxes or taxes paid in advance on its balance sheet. 
10. Other Noncurrent Assets
a. Long term advances to officers, directors, shareholders and employees
b. Abandoned property
c. Long term refundable deposit
d. Biological assets – living animals and living plants

*Agricultural produce – is the harvested product of an entity’s biological assets

*Product after harvest – detachment of produce from a biological asset or the cessation of a biological asset’s life
processes
e. Sinking fund/redemption fund – fund set aside for the liquidation of long term debt
f. Preference share redemption fund – fund to insure the eventual redemption of the preference share
g. Plant expansion fund/replacement fund – cash set aside in anticipation of future acquisition of property
h. Contingency fund – cash set aside for the purpose of meeting obligations that may arise from contingencies like
pending lawsuits or taxes in dispute
i. Insurance fund – cash set aside for the purpose of meeting obligations that may arise from certain risks like fire,
typhoon, etc.

LIABILITIES
CURRENT NONCURRENT
Trade and other payables Noncurrent portion of long-term debt
Current provisions Finance lease liability
Short-term borrowing Deferred tax liability
Current portion of long-term debt Long-term obligations to company officers
Current tax liability Long-term deferred revenue

*Current Liabilities - company's debts or obligations that are due to be paid to creditors within one year
*Noncurrent Liabilities - company's long-term financial obligations that are not due within one year

1. Trade and other payables

a. Trade accounts payable – are open accounts relating to purchase of goods and/or raw materials. It is supported
by oral or informal promises to pay by the debtor
b. Salaries payable – salaries already earned by employees but not yet paid by the business
c. Utilities payable – utilities (electricity, water, telephone, internet, cable TV, etc) already used but not yet paid
d. Interest payable – interest incurred but not yet paid. Interest payable arises from interest-bearing liabilities
e. Philhealth payable; Pag-ibig payable; SSS payable - contribution required by law as it’s share in the benefits of
the employees
f. Income Tax payable and VAT payable – liability to BIR
g. Gift certificates payable - liability to customers who bought certificates which will be redeemed in merchandise
 h. Refundable deposits – consist of cash or property received from customers but which are refundable after
compliance with certain conditions
i. Deferred revenue/Unearned revenue – income already received but not yet earned. Items related to income that
were collected in advance before they are earned. After the earning process is completed, these items are
transferred to income
j. Estimated premium liability – pertains to articles of value such as toys, dishes, silverware and other goods and in
some cases cash payments, given to customers as a result of past sales or sales promotion activities
k. Unearned revenue – points – pertains to points earned by a customer who avails a customer loyalty program as a
reward for past purchases and as incentive to make further purchases
l. Estimated warranty liability – liability to a customer who has given guarantee or warranty to have free repair
service or replacement during a specified period if the products are defective
2. Current provisions – an existing liability of uncertain timing or uncertain amount
Note: Contingent liability is not recognized.
3. Short-term borrowing
a. Notes payable (current portion) –obligations supported by written or formal promises to pay by the debtor in the
form of promissory notes
b. Interest payable – related to notes payable; considered as cost for borrowing money
4. Current portion of long-term debt
a. Loans payable; Note payable; bonds payable (current portion)– need to be paid in the current year
5. Noncurrent portion of long-term debt
a. Loans payable (noncurrent portion) – will be paid in the next years
b. Bonds payable (noncurrent portion) – contract of debt sold to certain individuals (ex. Convertible bond, callable
bond, guaranteed bond, junk bonds, etc.)
c. Note payable (noncurrent portion) – will be paid in the next years
d. Mortgage payable (noncurrent portion) - the liability of a property owner to pay a loan that is secured by property
6. Finance lease liability - lease that transfers substantially all the risks and rewards incident to ownership of an asset.
Title may or may not eventually be transferred
7. Deferred tax liability – amount of income tax payable in future periods
8. Long-term obligations to company officers
a. Postemployment benefits – payable after completion of employment (ex. Pensions, life insurance, medical care)
9. Long term deferred revenue - refers to advance payments a company receives for products or services that are to be
delivered or performed in a long term period

EQUITY/CAPITAL

Sole Proprietorship Partnership Corporation

Philippine term IAS term
Capital Capital Capital Stock Share capital
Withdrawals Withdrawals
Net Income Net Income Retained earnings(deficit) Accumulated profits (losses)
Retained earnings appropriated Appropriation reserve
Subscribed capital stock Subscribed share capital
Common stock Ordinary share capital
Preferred stock Preference share capital
Additional paid-in capital Share premium
Revaluation surplus Revaluation reserve
Treasury stock Treasury share

Statement of Comprehensive Income

Statement of Comprehensive Income

-financial statement that presents the success or failure of business operations of a company for a given period, in terms of
profitability.

Elements
1. Revenue – refers to the economic benefits that flow to the business in the form of increases in assets. It is also a
reduction in liabilities resulting from business operations. Thus the owner’s equity increases out of revenues, aside
from contributions of owners.
2. Expense – pertains to a decrease in economic benefits of the business due to reduction in assets or addition in
liabilities resulting from the business operations.

Note: Other comprehensive income is added after the two elements.

Revenue Accounts
1. Sales – pertain to the sale of goods, on cash or credit terms, of merchandising business
2. Service income – refers to earnings of a service business rendered to its clients on cash or credit basis
3. Professional fees – earnings derived by a professional or a professional servicing entity, which may be on cash or
credit terms
4. Interest income – includes the yield on promissory notes, which can be received in cash or may be collectible on a
future date
5. Rent income – represents the earnings of the owner or lessor from his or her property or facility received or collectible
from the occupant, called the tenant or lessee
6. Gain on sale of assets – refers to income obtained from sale of old, retired, or replaced assets, such as equipment,
investments in shares of stocks and land

Expense Accounts
1. Cost of sales/Cost of goods sold - pertains to the value given on the products sold. Its equivalent for a service business
is direct cost of services
2. Freight-out/Delivery Expense – represents the seller’s cost of delivering goods to customers
3. Supplies expense – refers to cost of consumed or used office supplies, store supplies and shop supplies, among
others.
4. Salaries and wages expenses – refers to the total payroll for the employees and workers of the business.
5. Rent expense – represents the rentals that have been used up during the accounting period
6. Utilities expense – represents the cost of utilities (electricity, water, telephone, internet, cable TV, etc.) that have been
used during the accounting period
7. Insurance expense – means the amount of premiums paid for insurance policy coverage such as life insurance of
company officers and employees, fire insurance, and robbery insurance, among others
8. Taxes and licenses – refer to costs of permits to operate a business, and income and business taxes paid to the local
government unit, the Register of Deeds, and the Bureau of Internal Revenue, among others.
9. Doubtful accounts expense/Bad debts expense – represents the estimated amount of customers’ debts to the
company, which are deemed to be uncollectible
10. Depreciation expense – allocate cost of the property or equipment to the accounting period. It is attributed to
obsolescence, wear and tear, and passage of time.
11. Advertising expense – represents the cost of promotional or marketing activities during the period
12. Transportation expense – represent the necessary and ordinary cost of employees getting from one workplace to
another which are reimbursable by the business
13. Travel expenses – represent the costs incurred when travelling on business trips
14. Interest expense/Finance cost/Borrowing cost – represents the cost of borrowing money. It is the price that a lender
charges a borrower for the use of the lender’s money. Other terms for interest expense are finance costs and
borrowing costs.
15. Miscellaneous expense – represents various small expenditures which do not warrant separate presentation
16. Losses – expenses which may or may not arise from the ordinary course of business activities

Other Comprehensive Income

1. Unrealized gain or loss on financial asset measured at fair value through other comprehensive income
Gain or loss from translating the financial statements of a foreign operation
2. Revaluation surplus during the year
3. Unrealized gain or loss form derivative contracts designated as cash flow hedge
4. Remeasurements of defined benefit plan including actuarial gain or loss on defined benefit obligation
5. Change in fair value attributable to credit risk of financial liability designated at fair value through profit or loss

Statement of Changes in Equity

-is the financial statement that presents the movements of the owner’s equity (capital account) during the reporting period. It
reflects the ending balance of the owner’s equity.

Sole proprietorship – owner’s capital

Partnership – partner’s capital
Corporation – shareholder’s equity

Elements of SCE
1. Beginning Capital
2. Additional Capital
3. Net Income
4. Withdrawals

Cash Flow Statement

-is a summary of the cash inflows and outflows that brought cash to its ending balance. The CFS is a formal statement that
classifies cash receipts (inflows) and cash payments (outflows) into operating, investing and financing activities of an entity
during a period. This financial statement shows the net increase or decrease in cash during the period and the cash balance at
the end of the period. It also helps project the future net cash flows of the entity.

Components of CFS
1. Operating Activities – are activities intended to generate income for the business. Thus, they affect net income.

Increases in Cash Decreases in Cash

Cash receipts from: Cash payments for:
Sale of goods or services Purchases of inventory
Sale of trading securities Operating expenses
Interest Income Taxes
Dividend Income Interest Expenses
Purchase of trading securities

2. Financing Activities – pertain to transactions between the business and its owner(s) and creditors (lenders). Thus,
these activities affect non-operating current liabilities, noncurrent liabilities and owner’s equity.

Increases in Cash Decreases in Cash

Cash receipts from: Cash payments for:
Owner’s investment Owner’s drawings
Borrowings Payment of borrowings

3. Investing Activities – are transactions or activities that will affect nonoperating current assets and noncurrent assets.
The investing activities arises from business transactions involving acquisition and disposal of assets other than
inventory, which are needed in the operation of the business.

Increases in Cash Decreases in Cash

Cash receipts from: Cash payments for:
Sale of plant assets Purchase of plant assets
Sale of nontrading securities Purchase of nontrading securities
Sale of business segment Making loans to other entities
Collection of loans

3 classes of accounts
1. Real accounts (Permanent Accounts) – represents assets, liabilities and equity; carried from one accounting period to
another.
2. Nominal accounts (Temporary Accounts) – represent revenue and expenses; closed at the end of every accounting
period.
3. Mixed accounts – represent those with real and nominal element

❖ Contra accounts – offset accounts or accounts which are deducted from related account

❖ Adjunct accounts – accounts which are added to the related account

CHART OF ACCOUNTS

Chart of accounts
-a list of all the accounts used by the business
-account numbers are assigned to the accounts to facilitate recording, cross-referencing, and retrieval of information.

⮚ The first digit in the 3-digit numbering refers to the major types of accounts:
Major types of accounts Assigned number
Assets 1
Liabilities 2
Equity 3
Income 4
Expenses 5
 ⮚ The second digit in the 3-digit numbering refers to the account titles and the sequence on how they are listed in the
chart of accounts
⮚ The third digit in the 3-digit numbering, if not zero, signifies that the account is a contra account or an adjunct account
to a related account

a. The chart of accounts of a bank should conform to the chart of accounts endorsed by the Bangko Sentral ng Pilipinas
(BSP)
b. The chart of accounts of a cooperative should conform to the chart of accounts endorsed by the Cooperative
Development Authority (CDA)
c. The chart of accounts and the account numbering system of a national government agency must conform to the
Revised Chart of Accounts (RCA) issued by the Commission on Audit (COA)

Note: To promote comparability, a business shall use account titles that conform to the PFRS and industry practices.
Furthermore, regulated businesses should have charts of accounts and/or account numbering system that conform to
relevant regulations.

EXAMPLE:
ABC Company
Chart of Accounts
   
STATEMENT OF FINANCIAL POSITION ACCOUNTS INCOME STATEMENT ACCOUNTS
Account No. Account Titles Account No. Account Titles
   
ASSETS INCOME
110 Cash 410 Service Fees
120 Accounts receivable 420 Interest Income
125 Allowance for bad debts 430 Gains
130 Notes receivable  
140 Prepaid supplies EXPENSES
150 Prepaid rent 510 Freight-out
155 Prepaid insurance 515 Salaries expense
160 Land 520 Rent expense
170 Building 525 Utilities expense
175 Accumulated depreciation - Bldg. 530 Supplies expense
180 Equipment 535 Bad debt expense
185 Accumulated depreciation - Equipment 540 Depreciation expense-bldg.
  545 Depreciation expense-equipment
LIABILITIES 550 Advertising expense
210 Accounts payable 555 Insurance expense
220 Notes payable 560 Taxes and Licenses expense
230 Interest payable 565 Interest expense
240 Salaries payable 570 Miscellaneous expense
250 Utilities payable 575 Losses
260 Unearned income  
   
EQUITY  
310 Owner's capital  
320 Owner's drawing