AWWAccounting Equation
promises to pay in the form of promissory notes.
A = L + E/C
Assets – are the resources of the company that would give
them or provide them future economic benefits.
Liabilities - are their obligations that they need to be settlled or
pay.
Capital – remaining value of an owner’s interest in a company
after deducting all of the liabilities.
Assets
Current Assets – are those assets that are related to their
normal operating cycle or those that are useful one year after
the period. So, when we say current assets, something that is
just within the normal operating cycle of a company.
When we say normal operating cycle, it’s their usual
operations that they have cash and then buy inventory that
they will sell, and then render service or sell these products to
customers then they will receive cash because of that, and the
cycle goes and on again
Non-Current Assets – usually those non-current assets are long-
term things that we use.
Currents Assets
Cash – The company’s money
Accounts Receivable – You already rendered services to your
customers or sold goods with them, but the payment was not
yet received by the company, so you’re expecting to receive
smth from your customer, you will record them as AR.
Allowance for bad debts - the aggregate number of estimated
losses from uncollectible accounts receivable. Another term is
"allowance for doubtful accounts."
Notes Receivable - receivables supported by written or formal
Inventory - represents the goods that are held for sale by a
business. For a manufacturing business, inventory also includes
goods undergoing the process of production and raw materials
that will be consumed in the production process.
Prepaid Supplies – represents the cost of unused office and
other supplies.
Prepaid rent-rent paid in advance.
Prepaid insurance - cost of insurance paid in advance.
Accumulated depreciation - building the total amount of
depreciation expenses recognized since the building was
acquired and made available for use.
Office Supplies – Pens, peppers that are stocks or the goods
that the company self
Prepayment - covering less than1 year there are times that
companies pay for their rentals in advance
Merchandise Inventory – Inventory that are stocks or the goods
that the company sells
Non – Current Assets
Long-tern receivables – we have receivables that will not be
received by the company, within one year or that’ll be regarded
as a long-term receivable.
Land – The company’s lord and if they own Current Liabilities
also the building that they have.
- If the company only rents office space, they cannot
record the building as their own.
Equipment and Machineries –
Equipment- consists of various assets such as:
a. Machineries and other factory equipment
b. Transportation equipment, e.g., vehicles, delivery trucks
c. Office equipment, e.g., desks, cabinets, chairs d. Computer
equipment, e.g., server, personal computers, laptops
e. Furniture and fixtures, e.g., desks, cabinets, movable
partitions
Accumulated depreciation - equipment - the total amount of
depreciation expenses recognized since the equipment was
acquired and made available for use.
Collectively, land, building and equipment are referred to as
"Property, plant and equipment," "Capital assets," or "Fixed
assets."
Furnitures and fixtures – anything that being installed
Investment in equity securities – Sometimes the company
purchase stocks from the other companies, as if there.
Intangible Assets – those without physical substance like
patents.
Investment Properties – are those properties that are held by
company or owned by the company for rentals capital equation
Prepayments extending more than 1 year insurance - insurance
policies then that would fall under non-current a text. But the
current portion of the prepayments within one year will be
recorded as a current asset.
Liabilities
Current Liabilities- payable within one year then that is a
current liability but if it is longer than one year then that is on
current liability and basically if your liability is related to trade or
your normal operating as a current liability
Accounts Payable - we can say that that is the opposite of
accounts. Receivable, vice versa. We’re the one who receive
service or bought products, or we bought something from our
suppliers that has not been paid yet? So, we’re expecting to
pay, Obligation, obligation to pay.
- obligations supported by oral or informal promises to
pay by the debtor.
Notes payable - obligations supported by written or formal
promises to pay by the debtor in the form of promissory note.
-because you promise to pay is made formally or in
writing.
Interest Payable – interest incurred but not yet paid. Interest
payable arises from interest bearing liabilities. Ex. You’ll incur
interest on your bank loan.
Salaries Payable – salaries already earned by employees but not
yet paid by the business.
Utilities Payable – utilities (electricity, water, telephone,
internet, cable TV) already used but not yet paid.
Short-term Notes Payable – when we say notes payable these
are borrowings that the company did and then they sign a
promise within one year then that is a short term not payable
Earned Revenue – for example the company has already
received payment from customers in advance, but the services
or goods has not been rendered or not yet provided then
there’s an under in revenue.
Unearned income – items related to income that were
collelcted in advance before they are earned. After the earning
process is completed, these will be transferred to income.
Accruals – Expenses within the period but will be paid next
period. So that is an expnse period, but it is also a payable
because its already expense those who aren’t considered.
Other short-term liabilities – liabilities or obligations that fall Account – is a record of the increases and decreases in the
under just within one year after the reporting period and will specific item of asset, liability, equity, income or expense.
also be regarded as short-term liability. It consists of 3 parts,
Account title, debit side and credit side
CAPITAL
- Debit is the left side of an account sometimes to
Sole Proprietorship
referred as “the value received,
Owner’s equity - while credit is the right side and commonly known as
“value parted with”
Owner’s drawings
5 Major accounts are Assets, Liabilities, Equity, Income, and
Partnership Expenses
Partner’s Equity The balance of an account is the difference between the total
Partner’s Drawings debits and total credits in the account
Corporation A, L, E – are balanced sheet accounts while I and E are income
statement accounts
Share Capital
Chart of accounts is the list of all the accounts used by the
Share premium business.
Retained earnings Account numbers are assigned to each account to facilitate
recording, cross- referencing and retrieval of information.
Depreciation – Systematic way of allocating the cost of an asset Balance sheet (statement of financial position) shows the
depending on how many years have been used. financial position of a business.
Expenses- Expenses to continue operating. Income statement (or the statement of financial position)
shows the profit or loss of a business.
Rent expense – happens only when we have rental fees
Chart of Accounts – is a listing of the names of the accounts
to indicate whether a debit or credit will increase the
that a company has identified and made available for recording
amount in the account.
transactions.
- As we record transactions, we need to analyze what
are the functions of that account, for use to classifty
where it belongs.
- The company should prepare a chart of account.
 EXPENSES

Cost of sales (or Cost of goods sold) - represents the value of

inventories that have been sold during the accounting period.

Freight-out-represents the sellers' costs of delivering goods to

customers. Other terms for freight-out are "delivery expense,"
"transportation-out," and "carriage outwards."

Salaries expense represents the salaries earned by employees

for the services they have rendered during the accounting
period.

Rent expense - represents the rentals that have been used up

during the accounting period.