Lesson 3: Typical Account Title Used

Target Outcomes

At the end of the lesson, you are expected to:

1. enumerate and give examples of the different account titles;

2. analyze transaction using proper account titles;

Abstraction

TYPICAL ACCOUNT TITLE USED

BALANCE SHEET

1. ASSETS

Assets are classified only in two: Current and Non-Current Assets.

Current Assets – an asset expected to be realized in, or held for sale or

consumption in, the normal course of the enterprise’s operating cycle; or

–is held primarily for trading purposes or for short-term expected to be

realized within twelve months of the balance sheet date; or

– is cash or a cash equivalent asset which is not restricted in its use.

Classification of Current Assets

1. Cash – is any medium of exchange that a bank will accept for deposit at face
value. It includes coins, currency, checks, money orders, bank deposits and
drafts.

2. Cash Equivalents – these are short-term, highly liquid investments that are
readily convertible to known amounts of cash and which are subject to an
insignificant rick of changes in value.

3. Short-term Investments – investment which are readily marketable and represent

temporary investments of funds available for current operations and are intended
to meet working capital requirements.

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 4. Notes Receivable - is a written pledge that a customer will pay the business a
fixed amount of money on a certain date.

5. Accounts Receivable – these are claims against customers arising from sale of
services or goods on credit. This type of receivable offers less security than a
promissory note.

6. Inventories – these are assets which are: A) held for sale in the ordinary course
of business; B) in the process of production for such sale; or C) in the form of
materials or supplies to be consumed in the production process or in the
rendering of service.

7. Prepaid Expense – these are expenses paid for by the business in advance. It is
an asset because the business avoids having to pay cash in the future for a
specific expense. These include insurance and rent.

Non-Current Assets

1. Long-term Investments – investments that are intended to be held for an

extended period of time.

2. Properly, Plant and Equipment – these are tangible assets that are held by an
enterprise for use in the production or supply of goods or services, or for rental to
others, or for administrative purposes and which are expected to be used to
others, and which are expected to be used during more than the one period.

3. Accumulated Depreciation – it is a contra account that contains the sum of the

periodic depreciation charges. The balance in this account is deducted from the
cost of the related asset – equipment and buildings – to obtain book value.

4. Intangible Assets- these are identifiable, non-monetary assets without physical

substance held for use in the production or supply of goods and services, for
rental to others, or for administrative purposes. These includes goodwill, patents,
copyrights, licenses, franchises, trademarks, brand names, etc.

2. LIABILITIES

Current Liability. When it is expected to be settled in the normal course

of the enterprise’s pay for them in the near future. Is due to be settled
within twelve months of the balance sheet due.

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 Classification of Current Liabilities

1. Accounts Payable – this account represents the reverse relationship of the

accounts receivable. By accepting the goods and services, the buyer agrees to
pay for them in the near future.

2. Notes Payable- is like a note receivable but in the reverse sense. In the case of a
note payable, the business entity is the market of the note; that is, the business
entity is the party who promises to pay the other party a specified amount of
money at specified future date.

3. Accrued Liabilities – amounts owed to others for unpaid expenses. This account
includes salaries payable, utilities payable, interest payable and taxes payable.

4. Unearned Revenues – when the business entity receives payment before

providing the customers with goods and services, the amounts received are
recorded in the unearned revenue account (liability method). When the goods or
services are provided to the customer, the unearned revenue is reduced and
income is recognized.

Non-Current Liabilities

1. Mortgage Payable – this account records long-term debt of the business entity
for which the business entity has pledged certain assets as security to the
creditor.

2. Bonds Payable – the bond is a contract between the issuer and the lender
specifying the terms of repayment and the interest to be charged.

3. OWNER’S EQUITY

1. Capital – this account is used to record the original and additional investments of
the owner of the business entity. It is increased by the amount of the income
earned during the year or is decreased by a net loss.

2. Withdrawals – when the owner of the business entity withdraws cash or other
assets, such are recorded in the drawing or withdrawal account rather than
directly reducing the owner’s equity account.

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 3. Income Summary – it is a temporary account used at the end of the accounting
period to close income and expenses. This account shows the net income or net
loss for the period before closing to the capital account.

INCOME STATEMENT

Income

1. Service Income – revenues earned by performing services for a customer or

client.

2. Sales – revenues earned as a result of sale of merchandise.

Expenses

1. Cost of Sales – the cost incurred to purchase or to produce the products sold to
customers during the period; also called cost of goods sold.

2. Salaries or Wages Expense – includes all payments as a result of an

employer-employee relationship such as salaries and wages, 13th month pay,
cost of living allowance and other related benefits.

3. Utilities Expense – expenses related to use of telecommunication facilities,

consumption of electricity, fuel and water.

4. Rent Expense – expense for space, equipment or asset rentals.

5. Supplies Expense – expense of using supplies, in the conduct of the daily

business.

6. Insurance Expense – portion of premiums paid in insurance coverage.

7. Depreciation Expense – the portion of the cost of a tangible asset allocated or

charged as expense during the accounting period.

8. Uncollectible Accounts Expense – the amount of receivables estimated to be

doubtful of collection and charged as expense during the accounting period.

9. Interest Expense – an expense related to use of borrowed funds.

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 Utilization of Learning

I. Indicate what account titles to be used in the following transactions:

a. Investment of cash in the business 


b. Purchase of computer equipment for cash 


c. Billed a customer for services rendered 


d. Paid salaries 


e. Purchased office supplies on credit 


f. Paid advertising expense 

g. Paid rent in advance for 3 months 

h. Received cash from customers on account 

i. Withdrew cash for personal use 

j. Invested land into the company 

k.

Supplementary Materials

Go to this link: Accounting Coach by Harold Averkamp. The website has a free version
where you could practice problem solving, interactive quizzes, puzzles, and basic
concepts and principles in accounting. to make ace your way to Accounting.

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