Senior High School

Name of Learner: _________________________________ Date:___________________

Section:_________________________________________ Quarter 3 – Week 3

The Five Major Accounts

Background Information for Learners

Businesses use an accounting tool to organize important accounts that help create their financial
statements. This accounting tool is called Chart of Accounts. A chart of accounts is a useful
document that lets you present all the financial information about your business in one place,
giving you a clear picture of your company’s financial health. Before you could prepare a chart of
accounts, it is important to be familiarized first with its components which comprise of the five
major accounts: assets, liabilities, capital, revenue and expenses.

ASSETS – refer to ‘resources owned and controlled by the entity’ as a result of past transactions
and events, from which future economic benefits are expected to flow to the entity.

A. Current assets – held for the purpose of being traded, expected to be realized or
consumed within twelve months after the end of the period or its normal operating cycle
(whichever is longer), or if it is cash.

Examples of current assets:

• Cash
• Accounts Receivables – claims against customers arising from sale of goods or
services
• Notes Receivable – written pledge that customers will pay the business a fixed amount
of money on a certain date
• Inventories – assets held for sale in the ordinary course of business
• Prepaid expenses – expenses paid in advance

B. Non-current assets – are long-term in nature – useful for a period longer that 12 months
or the company's normal operating cycle.

Examples of non-current asset accounts:

• Property, plant and equipment
• Building
• Machinery and Equipment
• Furniture and Fixtures
• Motor Vehicles
• Long-term investments – investments for long-term purposes such as investment in
stocks, bonds, and properties; and funds set up for long-term purposes
• Land – land area owned for business operations (not for sale)
 • Intangibles – long-term assets with no physical substance, such as goodwill, patent,
copyright, trademark, etc.

LIABILITIES - are economic obligations or payables of the business arising from past transactions
or events.

A. Current liabilities – A liability is considered current if it is due within 12 months after the
end of the balance sheet date. In other words, they are expected to be paid in the next year.

Examples of current liabilities:

• Accounts Payable
• Notes Payable
• Accrued Liabilities – salaries payable, utilities payable, interest payable, taxes payable
• Unearned Revenues – when the business entity receives payment before providing its
customers goods or services
• Current portion of a long-term debt

B. Non-current liabilities – A liability is considered non-current if they are not currently

payable, they are not due within the next 12 months after the end of the accounting period or
the company's normal operating cycle, whichever is shorter.

Examples of Non-current liabilities:

• Mortgage payables
• Bonds Payable
• Deferred tax liabilities; and
• Other long-term obligations

CAPITAL - also known as equity, refers to what is left to the owners after all liabilities are settled.
Simply stated, Capital/Equity = Assets – Liabilities.

Capital is affected by the following:

1. Initial and additional contributions of owner/s (investments),

2. Withdrawals made by owner/s (dividends for corporations),
3. Income, and
4. Expenses.

Owner contributions and income increase capital. Withdrawals and expenses decrease it.

INCOME - refers to an increase in economic benefit during the accounting period in the form of
an increase in asset or a decrease in liability that results in increase in equity, other than
contribution from owners.

Examples of income accounts:

• Service Revenue
 • Professional Fee
• Rent Income
• Interest Income
• Sales

EXPENSE - are decreases in economic benefit during the accounting period in the form of a
decrease in asset or an increase in liability that result in decrease in equity, other than distribution
to owners.

Examples of expenses:
• Advertising Expense
• Rent Expense
• Salaries Expense
• Income Tax
• Repairs
• Losses

What is a Chart of Account?

A chart of accounts is a list of all the company’s “accounts,” together in one place. It provides a
bird’s eye view of every area of a business that spends or makes money. The main account types
include Revenue, Expenses, Assets, Liabilities, and Capital/Equity.

The chart of accounts organizes finances into numbered account categories. Most businesses
follow this consistent, commonly accepted account numbering system:
100 – 190: Assets
200 – 290: Liabilities
300 – 390: Equity
400 – 490: Revenue
500 – 590: Expenses

Sample Chart of Accounts

San Juan Consulting

Chart of Accounts

Account Number Account Name Account Type

101 Cash Asset
102 Account Receivable Asset
103 Office Furniture Asset
104 Computer Asset
105 Office Supplies Asset
201 Accounts Payable Liability
 202 Rent Payable Liability
203 Salaries Payable Liability
204 Notes Payable Liability
205 Payroll Taxes Payable Liability
301 San Juan, Capital Owner’s Equity
302 San Juan, Drawing Owner’s Equity
401 Consulting Revenue Income
501 Office Supplies Expense Expense
502 Rent Expense Expense
503 Utilities Expense Expense
504 Payroll Expense Expense

Learning Competency with code

1. Discuss the five major accounts. (ABM_FABM11-IIId-e-19)

2. Prepare a chart of accounts. (ABM_FABM11-IIId-e-21)

Activity 1

Direction: Identify the following as asset, liability, capital, income, or expense.

Account Name
1. Cash
2. Delivery Truck
3. Loan from banks
4. Sales
5. Utilities Expense
6. Delivery Costs
7. Buildings
8. Rent Payable
9. Salaries Payable
10. Accounts Receivable
11. Salaries Expense
12. Professional Fee
13. Rent Income
14. Office Furniture
15. Notes Receivable
Activity 2
Directions: Identify the account types of the following account names. In column A, indicate
whether it is: Asset, Liability, or Capital. In column B, write if an asset or a liability is: Current or
Non-current. If it is capital, place N/A.

A B
Account Name
(Asset/Liability/Capital) (Current/Non-Current/N/A)
1. Cash
2. Tools and Equipment
3. Salaries Payable
4. Delivery Truck
5. Loan from bank, 6 years
6. Withdrawals made by owner
7. Accounts Payable
8. Notes Payable
9. Inventories
10. Prepaid Expense
11. Furniture and Fixtures
12. Additional Investment
13. Bonds Payable
14. Building
15. Land

Activity 3
Direction: Place the following account names in their respective account types.

Asset Sales Repair Withdrawal Equipment

Loss Land Mortgage Inventory
Cash Bonds Trademark Patent
Office Supplies Utilities Payable
Salaries Expense Prepaid Expense

Liability Income

Capital Expense
Activity 4

Direction: Prepare the chart of accounts for Crystal Events.

Interest Expense Referral Revenues Crystal, Withdrawals Interest Payable

Office Equipment Service Vehicle Prepaid Insurance Utilities Payable
Salaries Payable Accounts Payable Crystal, Capital Rent Expense
Utilities Expense Insurance Expense Accounts Receivable Notes Payable
Cash Prepaid Rent Salaries Expense Supplies Expense

________________________________________
Chart of Accounts

Account Number Account Name Account Type

Activity 5

Direction: Write the letter of the correct answer.

______1. What is a record in an accounting system that tracks the financial activities of a specific
asset, liability, equity, revenue, or expense?
A. Accounts B. Chart of Accounts C. Journal D. Report

______2. What is a list of account titles that are used by business enterprise to describe their
transactions?
A. Accounts B. Chart of Accounts C. Journal D. Report

______3. What are debts that a company owes to someone else? This would include accounts
payable and any taxes which are owed to the government.
A. Assets B. Liability C. Capital D. Income

______4. What is the basic equation for determining equity?

A. Assets+Income C. Assets+Liability
B. Assets - Liability D. None of the Above

______5. What refers to ‘resources owned and controlled by the entity’ as a result of past
transactions and events, from which future economic benefits are expected to flow to the entity?
A. Assets B. Liability C. Capital D. Income

______6. What refers to the costs that are incurred in the process of running a business? This
would include office rent, utilities and office supplies.
A. Assets B. Liability C. Expenses D. Income

______7. Which of the following account names is an example of current liability?

A. Mortgage Payable B. Notes Payable C. Bonds Payable D. Deferred Tax

______8. What refers to a collectible of the company and is supported by a promissory note?
A. Accounts Receivable B. Notes Payable C. Notes Receivable D. Cash

______9. Service revenue, Professional Fee, and Sales belong to what account?
A. Assets B. Liability C. Expenses D. Income

______10. What account is affected by initial and additional contribution of owner/s, withdrawals,
income, and expenses?
A. Assets B. Liability C. Capital D. Expense

Reflection:

A chart of accounts is a useful tool because….

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References:
Aliling, Leonardo. Fundamentals of Basic Accounting First Edition. Rex Book Store Inc., 2013.

Ong, Flocer. Fundamentals of Accounting Textbook for Beginners Third Edition. C& E Publishing, Inc.,
2012.

“Chart of Accounts.” Accounting for Management.Org. https://www.accountingformanagement.org/chart-

of-accounts/

Averkamp, Harold. “Chart of Accounts.” Accounting Coach. https://www.accountingcoach.com/chart-of-

accounts/explanation

Answer Key:

Activity 1
1. Asset 4. Income 7. Asset 10. Asset 13. Income
2. Asset 5. Expense 8. Liability 11. Expense 14. Asset
3. Liability 6. Expense 9. Liability 12. Income 15. Asset

Activity 2
A B
Account Name (Asset/Liability/Capital) (Current/Non-Current/N/A)

1. Cash Asset Current

2. Tools and Equipment Asset Non-current
3. Salaries Payable Liability Current
4. Delivery Truck Asset Non-current
5. Loan from bank, 6 years Liability Non-current
6. Withdrawals made by owner Capital N/A
7. Accounts Payable Liability Current
8. Notes Payable Liability Current
9. Inventories Asset Current
10. Prepaid Expense Asset Current
11. Furniture and Fixtures Asset Non-current
12. Additional Investment Capital N/A
13. Bonds Payable Liability Non-current
14. Building Asset Non-current
15. Land Asset Non-current

Activity 3

ASSETS LIABILITIES CAPITAL INCOME EXPENSE

Cash. Land, Trademark Mortgage Payable Withdrawal Sales Loss, Repair
Office Supplies, Equipment Bonds Payable Investment Salaries Exp.
Patent, Inventory, Prepaid Exp. Utilities Payable

Prepared by:

CATHERINE P. PASCUAL
Teacher II