THE ACCOUNTS

JOHNNY B. CORONO, CB, CPA

Fundamentals of Accounting, P1
ACCOUNTS DEFINED

An account is an individual accounting

record of increases and decreases labeled as
debits and credits.

There are separate accounts for each

classification type such as cash, salaries
expense, accounts payable, etc.
THE T- ACCOUNT
WHAT IS T-ACCOUNT?
A T-account is a helpful tool in showing the
effects of transactions and events on
specific accounts. The T-account gets its
name from its shape. Its shape looks like
the letter T
 Account Title
Account No.

Debit Side Credit Side

TWO-FOLD EFFECTS OF THE
BUSINESS TRANSACTIONS
ASSETS

Increase in Assets may be

A due to;
S 1. Increase In liability
S 2. Increase in owners equity
E 3. Decrease in another form
of assets
T 4. Increase in Income
S (revenue or gain)
ASSETS
S
T
E Decrease in Assets may be
due to;
S
S 1. Decrease In liability
A 2. Decrease in owners
equity
3. Increase in another form
of assets
4. Increase in Expenses
(loss)
LIABILITY

L Increase in Liability may be

I due to;
A
B 1. Increase In Asset
I 2. Decrease in another form
L of liability
I 3. Increase in expense (loss)
T 4. Decrease in an income
Y (revenue/gain)
LIABILITY
Y
T
I
L Decrease in Liability may be
I due to;
B
A 1. Decrease In Asset
I 2. Increase in another form
L of liability
3. Increase in an Income
(Gain/Revenue)
4. Decrease in an Expenses
(loss)
EQUITY

Increase in Equity may be

E due to;
Q 1. Increase In Asset
U 2. Decrease in another form
I of equity
3. Decrease in an expense
T (loss)
Y 4. Increase in an income
(revenue/gain)
EQUITY
Y
T
I Decrease in Equity may be
due to;
U
Q 1. Decrease In Asset
E 2. Increase in another form
of equity
3. Decrease in an Income
(Gain/Revenue)
4. Increase in an Expenses
(loss)
REVENUE

R
E Increase in Revenue may
V be due to;
E 1. Increase In Equity
N 2. Decrease in liability
U 3. Increase in Asset

E
REVENUE
E
U
N
E
V
E Decrease in Revenue may
R
be due to;

1. Decrease In Equity
2. Increase in liability
3. Decrease in Asset
EXPENSES

E
X Increase in Expenses may
P be due to;
E
N 1. Decrease In Equity
S 2. Increase in liability
3. Decrease in Asset
E
S
EXPENSES
S
E
S
N

Decrease in Expenses may

E

be due to;
P
X

1. Increase In Equity
E

2. Decrease in liability
3. Increase in Asset
 HOWEVER, knowing the “ increase or
decrease rules” is useful only if, in the first
place, you are capable of identifying
whether an item is an asset, a liability, an
equity, an expense or an income account.
Indicate the effects of the following independent transactions on the different
accounting elements.Express your answers in terms of debit or credit.
Indicate the effects of the following independent transactions on the different
accounting elements.Express your answers in terms of debit or credit.
Indicate the effects of the following independent transactions on the different
accounting elements.Express your answers in terms of debit or credit.

Debit Credit

Credit Debit

Debit Credit

Debit Cash
Credit AR

Debit Credit

Credit Debit

Credit Debit
Indicate the effects of the following independent transactions on the different
accounting elements.Express your answers in terms of debit or credit.

Credit Debit (Drawings)

Debit
Credit Credit
Debit
Credit

Debit Credit

Debit Credit

Debit Credit

Debit Debit
Credit
ACCOUNT TITLES
ACCOUNT TITLE DEFINED

An account title is the unique name assigned to an

account in an accounting system. An account title is
essential when the accounting staff needs to identify
an account, since the title conveys the purpose of
the account. The other unique identifier, the numeric
account code, may incorporate some identification
logic, but is much more difficult to associate with a
specific account. Without an account title, the
possibility of making an incorrect entry into the wrong
account would be much higher.
ACCOUNT TYPE

PERMANENT OR REAL ACCOUNT

• Refers to a general ledger account that is not closed
at the end of an accounting year. The balance in a
permanent account is carried forward to the
subsequent year, where it becomes the beginning
balance for the new year.
• All ASSETS, LIABILITIES and EQUITY accounts are real
of permanent account.
ACCOUNT TYPE

TEMPORARY OR NOMINAL ACCOUNT

• The balance in a nominal account is closed at the
end of the accounting year. As a result, a nominal
account begins each accounting year with a zero
balance. Since the balance does not carry forward
to the next accounting year, a nominal account is
also referred to as a temporary account.
ACCOUNT TYPE

TEMPORARY OR NOMINAL ACCOUNT

• The nominal accounts are almost always the income
statement accounts such as the accounts for
recording revenues, expenses, gains, and losses.
When the income statement accounts are closed at
the end of the accounting year, the net amount will
ultimately end up in a balance sheet equity
account such as the proprietor's capital account or
the corporation's retained earnings account.
ACCOUNT TYPE

MIXED ACCOUNT
Contains both permanent and temporary
components. However, at the end of each of
reporting period, the mixed accounts are adjusted
and the components are broken down, so that there
are no more mixed accounts by the time financial
statements are prepared.
ASSET
ACCOUNTS
LIABILITY
ACCOUNTS
EQUITY
ACCOUNTS
EQUITY
ACCOUNTS
OPERATING
REVENUE
ACCOUNTS
EXAMPLE OF OPERATING
REVENUES
Account Titles Description/Explanation
Sales Income, Sales Revenue, or Sales Used to record the gross selling price
of the goods and product sold to the
customers in the ordinary course of
business operations. This income title
is used in recording and reporting both
the cash sales and credit sales of a
merchandising enterprise.
Service Fees or Service Income Generic term used to encompass all
income earned for services rendered to
the customers or clients in the ordinary
course of operations of the business.
EXAMPLE OF OPERATING
REVENUES
Account Titles Description/Explanation
Professional fees/income Used to record gross billing of a professional service
provider, e.g.doctors/accountant/engineer
Retainers Fee This is the income account used by a professional
who renders continuous service to a client and gets
paid by the client at a fixed rate.
Commission Consideration received by an agent or broker for
Revenue/income performing a task on behalf of the principal
Rent Revenue/Income Consideration received by the owner of the property
for allowing another entity to use his tangible
property, such as land, building, machinery or
equipment.
EXAMPLE OF OPERATING
REVENUES
Account Titles Description/Explanation
Interest Revenue/Income Consideration received by the lender for allowing a
borrower to use his money.
Royalty Revenue/Income Consideration received by the owner of a brand,
patent, formula,secret, or any other exclusive right,
for allowing another entity to use his intangible
assets
OPERATING
EXPENSE
ACCOUNTS
 NON-
OPERATING
REVENUES
AND
EXPENSES,
GAINS, AND
LOSSES
 Accounting software frequently includes sample
charts of accounts for various types of businesses. It is
expected that a company will expand and/or modify
these sample charts of accounts so that the specific
needs of the company are met. Once a business is up
and running and transactions are routinely being
recorded, the company may add more accounts or
delete accounts that are never used.
CHART OF ACCOUNTS
A chart of accounts is a listing of the
names of the accounts that a company
has identified and made available for
recording transactions in its general
ledger. A company has the flexibility to
tailor its chart of accounts to best suit its
needs, including adding accounts as
needed.
 3 4 5
Instruction: Complete the crossword by filling in a
word that fits each clue. 10
1 2 11
Down
1. A __________-asset account would be used to accumulate the depreciation taken
on assets.
12
2. Asset accounts will normally have ___________ balances. 6
3. A company that wishes to have its income statement organized by responsibility
might use the company's _________________ chart when setting up its chart of accounts. 9
4. The __________ in an account number usually have special significance such as the 8
type of account, the department and/or division within the company, etc.
5. A contra-asset account will have a _____________ balance.
6. The chart of accounts contains the accounts in the company's ___________ ledger.
7. A __________ of accounts is a listing of the accounts to which transactions can be 7 13
posted.
8. Inexpensive accounting ______________ comes with charts of accounts already setup
for various types of companies. 14 15
9. Notes ____________ is the account that contains the principal amount owed to a
lender.
16
Across
10. Every transaction will affect a minimum of ________ accounts.
11. Interest owed on Notes Payable will be recorded as a credit in ______________
Payable.

12. Interest Expense and Interest Revenue/Income accounts are classified as 'Other' or
'Non-_____________________.'
13. Unearned Revenues and Customer Deposits are _______________ accounts.
14. The chart of accounts contains the account names and account numbers for the
following types of accounts: ____________ sheet accounts and income statement
accounts.
15. New accounts may be ____________ to the chart of accounts as needed.
16. Account ____________ are not part of a chart of accounts.