Arellano University

Juan Sumulong Campus

Senior High School Department
2600 Legarda St. Sampaloc, Manila

Elements of Financial Statements

Charts of Accounts

In Partial Fulfillment of the Requirements in Fundamental of Accountancy, Business, and

Management 1 For the 2nd Semester of School Year 2021-2022

Submitted By:
Trisha Jane S. Torres

Submitted To:
Mr. John Mark Pestaño

February 18, 2022

 ELEMENTS OF FINANCIAL STATEMENTS
The elements of the financial statements include:
 Assets
 Liabilities
 Equity
 Investments by owners
 Distributions to owners
 Comprehensive income
 Revenues
 Expenses
 Gains
 Losses

Assets - are the resources that are owned or controlled by the business to receive something of
value in the future. Assets include physical properties such as machinery and buildings as well as
monetary possessions such as cash and receivables.Cash is the most liquid form of assets.
Businesses require cash to exchange assets, settle liabilities, and pay for expenses and dividends
in the future.

i. Tangible Assets: Tangible Assets are those assets that have physical existence i.e. they
can be seen and touched.
Examples of tangible assets are machinery, furniture, building, etc.
ii. Intangible Assets: Intangible assets are those assets that do not have physical
existence i.e. they cannot be touched and seen. Examples of intangible assets are
goodwill, patents, trademarks, etc.
iii. Fixed Assets: Fixed Assets are those assets that are put to use for more than one
accounting period and their benefit is derived over a longer period.
For example, computers, machinery, land, etc.
iv. Current assets: Current assets are the assets that are readily convertible into cash and
generally absorbed within one accounting period.
 For example, debtors exist to convert them into cash, bills receivable, etc.

Liabilities- are the business’s obligations to deliver something of value to other people and
organizations besides its owners. Liabilities also include revenue received in advance because it
obligates a business to deliver a service or product to its customer in the future. For example, if a
video game publisher receives revenue from pre-order sales, the receipts are considered as a
liability of the business until the video game is shipped.

i. Current Liabilities It refers to those obligations or payments which

are repayable during the current financial year.
ii. Non-Current Liabilities It comprises of those payments which are due for
payment over a long period of time and there is no need to discharge it
immediately.

Equity - Owner’s equity is equal to total assets minus total liabilities. In other words, it is the
amount that can be handed over to shareholders after the debts have been paid and the assets
have been liquidated. Equity is one of the most common ways to represent the net value of the
company. Part of shareholder’s equity is retained earnings, which is a fixed percentage of the
shareholder’s equity that has to be paid as dividends.
The equity value can be positive or negative. If the shareholder’s equity is positive, then the
company has enough assets to pay off its liabilities. If it is negative, then liabilities exceed assets.

Investments by owners - it depicts an increase in equity resulting from the transfer of resources
in exchange for an ownership interest. It basically describes an owner’s contribution to the firm.
The issue of ownership shares of stock by a company in exchange for cash represents an
investment by owners.
Examples of owner investments include:
 Cash invested by partners in a partnership firm.
 Subscription of the shares of a company by its shareholders.
 Issuing shares of a company to its employees in compensation for their services.
 Conversion of convertible bonds into share capital.
Distributions to owners - It represents a decrease in equity which results from transfer to
owners. It determines the owners’ withdrawal from the ownership interest of the firm.A cash
dividend paid by a corporation to its shareholders is an example of distribution to owners.
The most common example of distributions to owners is the payment of dividends to
shareholders. Other examples of owner distributions include:
 Repurchase of issued share capital from shareholders by the issuing company.
 Conversion of ordinary shares into redeemable shares (debt).

Comprehensive income - is the change in equity of a business enterprise from transactions

from non-owner sources. It includes all changes in equity of an enterprise other than those
resulting from investments by owners and distributions to owners.

Revenues – it represent the items that increase the equity of an entity, but not including the
equity investments by stockholders and the items classified as other comprehensive income.
Examples of revenues include sales revenue and services revenue.

Expenses - represent the items that decrease the equity of an entity, but not including the equity
distributions to stockholders and the items classified as other comprehensive income. Examples
of expenses include cost of goods sold, salaries expense, rent expense, insurance expense,
advertising expense, utilities expense, interest expense and income taxes expense.

Types of Expenses in Accounting

While all types of expenses will affect your financial statements, they will affect your income
statement the most. The five major headings under which expenses are reported on your income
statement are:

 Cost of Goods Sold

 Operating Expenses
 Financial Expenses
 Extraordinary Expenses
 Non-Operating Expenses
Gains - Increases in equity (net assets) from peripheral or incidental transactions of an entity and
from all other transactions and other events and circumstances affecting the entity during a
period except those that result from revenues or investments by owners.

Losses - Decreases in equity (net assets) from peripheral or incidental transactions of an entity
from all other transactions and other events and circumstances affecting the entity during a
period except those that result from expenses or distributions to owners.

CHARTS OF ACCOUNTS (COA)

is simply a list of account names that a company uses in its general ledger for recording various
business transactions. It provides guidance to book-keepers, accountants or other relevant
persons in using specific account names while entering transactions in journal and later posting
them to ledger.
COA helps companies prepare, maintain, and monitor their financial accounts as per the standard
accounting norms. It facilitates stakeholders to interpret a company’s financial performance with
ease.

How Does Chart of Accounts Work?

Chart of Accounts gives a consolidated view of the financial transactions affecting a company’s
balance sheet and income statement. Depending on the size of an organization, a firm can have
multiple entries for expenses and income in an accounting year.
For instance, a large-scale company could have several entries for expenses that it doesn’t
separately mention in the income statement. A chart of accounts can help the company list all the
costs recorded in its general ledger in one place. This will enable the directors and shareholders
to quickly identify the source of expenses and revenues when going through the financial
statements.
The COA will include balance sheet entries of assets, liabilities and owner’s equity, and income
statement’s expenses and revenue. The chart of accounts numbering will indicate the location of
the listed account in the ledger.
Account Number
The account number is the unique code allotted to each account. It depicts the numbering of the
COA. For example, the account number 120 represents that this account belongs to the asset
class. A person can look up additional details related to the account in the ledger using this
number.

Account Type
The account type depicts the nature of each account. There are five primary types of accounts,
i.e., asset, liability, equity, income and expense. However, it can be reduced to four in small
organizations, while in large corporations, it can also be more than five.

Assets: It comprises fixed assets, intangible assets, inventory and current assets like cash, trade
receivables, etc. All the asset accounts contain account number starting with 1.

Liabilities: The COA liability category involves long-term and short-term borrowings, trade
payable, interest payable, and other current liabilities. All the liability accounts contain the
account number starting with 2.

Equity: It includes equity share capital, preference share capital, and reserve & surplus. All the
owner’s equity entries contain the account number starting with 3. Assets, liabilities and equity
are related to the balance sheet.

Revenue: It involves sales revenue, interest received, income from scrap, or any other earnings.
All the revenue accounts contain account number starting with 4.

Expenses: The COA expense category comprises the cost of goods sold, rent, electricity, salary
and wages, and any other business expense. All the expense accounts contain number starting
with 5. Expenses and revenues are related to the income statement.
REFERENCES
https://www.accountingcoach.com/blog/elements-of-financial-statements
https://accountingo.org/financial/statements/elements/
https://www.henryharvin.com/blog/10-elements-of-financial-statements/
https://www.zoho.com/books/guides/balance-sheet.html
https://flashcards.accountinginfo.com/elements-of-financial-statements/
https://www.assignmentpoint.com/business/accounting/describe-elements-financial-
statements.html
https://www.deskera.com/blog/expenses/#types-of-expenses-in-accounting
https://www.accountingformanagement.org/chart-of-accounts/
https://www.wallstreetmojo.com/chart-of-accounts/