TYPE OF

MAJOR
ACCOUNTS
The Account
Account is the basic storage of information in accounting.
It is a record of the increases and decreases in a specific
item of asset, liability, equity , income or expense.
An account may be depicted through a “ T – account”. A
‘T – account” is called as such because it resembles the
letter “ T “ . A “ T ” account has three parts namely:
1. Account title – describe the specific item of asset,
liability, equity, income or expense.
2. Debit Side – the left side of the account.
3. Credit Side – the right side of the account.
CASH This is the
“account title”
Debit Credit
Jan. 1 500
Jan 3 1,000 The term “Credit’ (Cr ) simply refers to the
800 Jan.4 right side of the account. It is sometimes
refered to as the “value parted with”
700

The term “debit” (Dr) simply
Refers to the left side of the
account.
It is sometimes referred to as the
“value received”
The difference between the total debits and
credits in the account represents the balance
of the account ( 500 + 1,000 – 800 = 700)
The Five Major Accounts
1. Assets are the resources owned and controlled by
the firm.
2. Liabilities are obligations of the firm arising
from past events which are to be settled in the
future.
3.Equity or Owner’s Equity are the owner’s claims
in the business. It is the residual interest in the assets
of the enterprise after deducting all its liabilities.
The Five Major Accounts
4. Income is the increase in economic benefits
during the accounting period in the form of inflows
of cash or other assets or decreases of liabilities that
result in increase in equity. Income includes revenue
and gains.
Revenue-arises in the course of the ordinary
activities of the business. e.g. sales, service income.
Gains – represent other items that meet the
definition of income and may or may not arise in the
course of the ordinary activities of an entity.
5. Expenses are decreases in economic benefits
during the accounting period in the form of
outflows of assets or incidences of liabilities that
result in decreases in equity. Expenses both includes
expenses and losses.
a. expenses- arise in the course of the ordinary
activities of the business.
b. losses – represents other items that meet the
definition of expenses and may or may not arise in
the course of ordinary activities of the business.
Classification of Five Major Accounts
According to Financial Statements
Statement of Income Statement
Financial Position Accounts
Accounts
1. ASSETS 4. INCOME
2. LIABILITIES 5. EXPENSES
3. EQUITY
Statement of Financial Position – (balance
sheet) is or components of a complete set of
financial statements that shows the financial
position of the business.
Income Statement- statement that shows the
profit and loss of the business.
The Five Major Accounts
1. Assets are the resources owned and controlled by
the firm.
Classification of assets
• Current Assets are assets that can be realized
(collected, sold, used up) one year after year-end
date. Examples include Cash, Accounts Receivable,
Merchandise Inventory, Prepaid Expense, etc.
•
• Non-current Assets are assets that cannot be
realized (collected, sold, used up) one year after
year-end date. Examples include Property, Plant
and Equipment (equipment, furniture, building,
land), long term investments, etc.
• Tangible Assets are physical assets such as cash,
supplies, and furniture and fixtures.
• Intangible Assets are non-physical assets such as
patents and trademarks
 Common types of Current Assets
• Cash is money on hand, or in banks, and other
items considered as medium of exchange in
business transactions.
• •Accounts Receivable are amounts due from
customers arising from credit sales or credit
services.
• •Notes Receivable are amounts due from clients
supported by promissory notes.
 Common types of Current Assets
• •Inventories are assets held for resale
• •Supplies are items purchased by an enterprise
which are unused as of the reporting date.
• •Prepaid Expenses are expenses paid in advance.
They are assets at the time of payment and become
expenses through the passage of time.
• •Accrued Income is revenue earned but not yet
collected
 Common types of Current Assets

• •Short term investments are the investments

made by the company that are intended to be sold
immediately
 Common types of Current Assets

• •Short term investments are the investments

made by the company that are intended to be sold
immediately
Non-Current Assets
• Land- the lot on which the building of the
business has been constructed or vacant lot which
is to be used as future plant site.
• Building- the structure owned by a business fir use
in its operations.
• Accumulated Depreciation- the total amount of
depreciation expenses recognized since the
building was acquired and made available.
Non-Current Assets
Equipment- consist of various assets such that
• A. Machineries and other factory equipment
• B. Transportation equipment (vehicles,delivery
trucks)
• C. Office equipment (computers,laptops)
• Furniture and Fixtures (desk, cabinets,movable
particion)
Non-Current Assets
• Long term Investments are the investments
made by the company for long-term purposes
• Intangible Assets are assets without a physical
substance. Examples include franchise and
copyright.
•
• Liabilities are the debts and obligations of the
company to another entity.

• Current Liabilities. Liabilities that fall due (paid,

recognized as revenue) within one year after year-
end date. Examples include Accounts Payable,
Utilities Payable and Unearned Income.
Non-current Liabilities are liabilities that do not
fall due (paid, recognized as revenue) within one year
after year-end date. Examples include Notes Payable,
Loans Payable, Mortgage Payable, etc.
Current Liabilities
• Accounts Payable are amounts due, or payable to,
suppliers for goods purchased on account or for
services received on account.
• Notes Payable are amounts due to third parties
supported by promissory notes.
• Accrued Expenses are expenses that are incurred
but not yet paid (examples: salaries payable, taxes
payable)
Current Liabilities
Interest payable- Interest incurred but not yet paid.
Salaries Payable – salaries already earned by the
employees but not yet paid.
Utilities payable – utilities (electricity, water,
telephone, internet, cable etc.)
Unearned Income is cash collected in advance; the
liability is the services to be performed or goods to
be delivered in the future.
Non-Current Liabilities

• Loans Payable
• Mortgage Payable
Owner’s Equity
Owner’s Equity is the residual interest of the
owner from the business. It can be derived by
deducting liabilities from assets.
Capital is the value of cash and other assets
invested in the business by the owner of the
business.
Drawing is an account debited for assets withdrawn
by the owner for personal use from the business.
Income Statement Accounts
Income is the Increase in resources resulting from
performance of service or selling of goods.
• Income increases equity.
Examples of Income Accounts.
• Service fees-revenue earned from rendering
services.
• Sales (revenue earned from the sale of goods.)
Income Statement Accounts

Interest income-revenue earned from the issuance

of interest bearing receivables.
Expense is the decrease in resources resulting from
the operations of business
Expenses decreases Equity in the accounting
equation
Examples of Expense Accounts
Salaries Expense -represents the salaries earned by
the employees for the services they have rendered
during the accounting period.
Freight out- represents the seller’s cost of delivering
goods to customers.
Rent expense-represents the rentals that have been
used up during the period.
Supplies expense- represents the cost of supplies
that have been used during the period.
Utilities expense- represents the cost of utilities that
have been used during the period.
Bad debt expense- the amount estimated losses from
uncollectible accounts receivable during the period.
Depreciation expense- the cost of depreciable asset
that has been allotted to the current accounting
period.
Advertising expense- represents the promotional or
marketing activities during the period.
Insurance expense- represents the cost of insurance
pertaining to the current accounting period.
Taxes and licenses- represents the cost of business
and local taxes required by the government for the
conduct of business.

Transportation and travel expenses

Interest expenses
Miscellaneous expense
Identifying the accounts:
1. You are renting the space for your laundry
business.The contract required you to pay
10,000.00 rent in advance.
The rent paid in advance is prepaid rent and will be
charged as rent expense when incurred.
Identifying the accounts:
2. Your friend borrowed 1,000 from your business
and you required him to sign a promissory note to
repay you within 30 days at 2 % monthly.

3. A customer buy a product of your business and

told you that he will pay you after a month worth
500.00 with interest of 1%
Identifying the accounts:
4. The customer with the P500 account receivable is
broke. You have estimated that you can only collect
P420.00 from him .
4. You purchased pork worth P1000.00 to be
marinated and sold as barbeque.
5. You prurchases table napkins worth P 200.00 to
be used in your barbeque operation.
_____1. It is the obligations of the company payable
in money, goods or services.
___ 2. These are non-current tangible assets.
_____3. These assets are identifiable, non-monetary
assets without physical substance.
_____4. It is the claim of the owner also known as
the capital.
_____5. It is the most liquid asset and is the medium
of exchange for business transactions.
__ 6. It is an expense for leased office space,
equipment or assets rented from others.
_____7. Examples of this are cash, account
receivable and prepaid expenses.
_____8. It is a written promise from the customer to
pay his receivables on a certain future date.
Indicate whether it is an increase (+), decrease (-), or no
effect on the asset, liabilities and equity accounts.
• Investment of cash in the business
• Purchase of computer equipment for cash
• Billed a customer for services rendered
• Paid salaries
• Purchased office supplies on credit
• Paid advertising expense
• Paid rent in advance for 3 months
• Withdrew cash for personal use
• Received cash from customers on account
• Withdrew cash for personal use
• Invested land into the company