ELEMENTS OF FINANCIAL STATEMENTS AND ACCOUNT TITLES USED

The elements of financial statements that are directly related to measurement of financial condition in
the balance sheet are assets, liabilities and equity while the elements that are directly related to measurement of
performance in the income statement are income and expenses. These accounting elements are given account
names or account titles.

Account titles are identification or brief description of items that fall to the same kind, class or nature.

 STATEMENT OF FINANCIAL POSITION OR BALANCE SHEET ACCOUNTS (permanent accounts)

ASSETS – resources controlled by the enterprise as a result of past transactions and events and from which future
economic benefits are expected to flow to the enterprise.
1. CURRENT ASSETS – assets that are expected to be realized, sold or consumed within the entity’s normal
operating cycle.
 Cash - describe money, either in paper or in coins and substitutes like checks, postal money orders, bank
drafts and treasury warrants.
 Cash Equivalents - short term, highly liquid instruments that are readily convertible into cash and they
present insignificant risk of changes in values.
 Petty Cash Fund – money placed and set aside for petty or small expenses.
 Notes Receivable – promissory note that is received by the business from the customer arising from
rendering of services or sale of merchandise.
 Accounts Receivable – amounts collectible arising from services rendered to a customer on credit or sale
of goods to customers on account.
 Allowance for Doubtful Accounts – contra-asset account, provides allowance for possible losses from
uncollected accounts.
 Advances to Employees – amounts collectible from employees for allowing them to make cash advances
which are deductible in their salaries or wages.
 Inventories – assets which are held for sale in the ordinary course of business, in the process of
production for such sale, and in the form of materials or supplies to be consumed in the production
process or in the rendering of services.
 Prepaid Expenses – expenses that are paid in advance but are not yet incurred or have not yet expired.

2. NONCURRENT ASSETS
 Property and Equipment – tangible assets which are held by an enterprise for use in production or supply
of goods and services, for rentals to others, or for administrative purposes, and which are expected to be
used for more than one period.
 Land – area where the building used as office or store is constructed.
 Building – finished construction owned by the business where operations and transactions took place
 Equipment – includes calculators, typewriters, adding machines, computers, steel, filing cabinets and the
like.
 Furniture and Fixtures – include chairs, tables, counters, display cases and the like
 Accumulated depreciation – contra-asset account for fixed assets subject to depreciation.
 Intangible assets – identifiable, non-monetary assets without physical substance held for use in
production or supply of goods or services.
*LIABILITIES – present obligations of the enterprise arising from past events, the settlement of which is expected
to result in an outflow from the enterprise of resources embodying economic benefits.
1. CURRENT LIABILITIES – financial obligations of the enterprise which are expected to be settled in the
normal course of the operating cycle, due to be settled within one year.
 Accounts Payable – financial obligation of an enterprise typically related to operational transactions.
 Notes payable (short term) – obligation is evidenced by a promissory note.
 Accrued expenses – expenses incurred by the enterprise but are not yet paid.
 Unearned income – income collected or received in advance but services has not been rendered yet.

2. NONCURRENT LIABILITIES
 Notes payable (long term) – requires payment for more than one year.
 Mortgage payable – a financial obligation which requires a fixed or tangible property to be pledged as
collateral to ensure payment.

EQUITY – residual interest in the assets after deducting all its liabilities
 Authorized Share Capital – maximum amount fixed by the corporate charter or articles of incorporation to
be subscribed and paid in by the shareholders.
 Share Capital – amount of shares which have been fully paid and the share certificates have been issued.
 Subscribed Share Capital – amount of shares which have been subscribed but not yet fully paid.
 Treasury shares – corporation’s own share which has been issued but later reacquired.
 Share Premium – representing the paid in capital in excess of the par value or stated value
 Retained earnings – represents the cumulative income and expense from the start it operates up to the
present.

 STATEMENT OF FINANCIAL PERFORMANCE OR INCOME STATEMENT ACCOUNT (temporary accounts)

 INCOME or REVENUE – increases 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.

 EXPENSES – decreases economic benefits during the accounting period in the form of outflows or
depletion of assets or incurrence of liabilities that result in decrease in equity, other than those
relating to distributions to equity participants.