Chapter 2

Accounting Elements
and Financial
Statements
Accounting Elements
 Basic accounting elements
 Assets – are resources controlled by the enterprise as a result of past transactions or events
from which future economic benefits are expected to flow to the enterprise.
 Liabilities – are present obligation of an enterprise arising from past transactions or events, the
settlement of which is expected to result in an outflow from the enterprise of resources
embodying economic benefits.
 Equity – represents residual interest in the assets of the enterprise after deducting all
liabilities.
 These accounts provide information on the financial condition of the business. They are
presented in the balance sheet and are thus called balance sheet accounts or also
termed real accounts.
Accounting Elements
 Other accounting elements
 Revenues – gross inflow of economic benefits during the period arising in the course
of ordinary activities of an enterprise whom those inflows result in increases in
equity other than those relating to contribution from owners.
 Expenses – gross outflow of economic benefits arising in the course of ordinary
activities when those outflow result in decrease in equity, other that those relating
to distribution to owners.
 These accounts provide information on the changes in capital as the result of
operation in the business. They are presented in the income statement and
are termed income statement accounts or also called nominal accounts.
Assets
Classified as Current Assets and Non-current Assets
 Current Assets
 Cash
 Cash equivalent
 Trading securities
 Accounts receivable
 Allowance for doubtful accounts
 Notes receivable
 Merchandise inventory
 Finished goods, good in process, raw materials, and factory manufacturing supplies
 Prepaid rent
 Prepaid insurance
 Unused supplies
Assets
 Non-Current Assets
 Property, Plant and Equipment of Fixed Assets
 Land
 Building
 Office equipment
 Store equipment
 Delivery equipment
 Machineries
 Furniture and fixtures
 Accumulated depreciation
 Long Term Investments
 Intangibles
 Copyright
 Franchise
 Patent
 Goodwill
 Trademark or brand name
 Other Non-Current Assets
Liabilities
Classified into Current Liabilities and Non-current Liabilities

 Current Liabilities
 Accounts Payable
 Notes Payable
 Accrued Expenses
 Interest Payable
 Salaries Payable
 Bank Loans Payable
 Deferred Revenues
 SSS Premium Payable
 Philhealth Premium Payable
 Withholding Tax Payable
 Non-Current Liabilities
 Mortgage Payable
 Deferred Revenue
Equity

 Owners’ Capital
 Owners’ Drawing
Revenue
 Service Concern
 Service income
 Professional income
 Rent income
 Repair income
 Laundry income
 Transportation income or fares earned
 Ticket sales
 Miscellaneous income
 Merchandising Concern
 Sales
 Sales returns
 Sales allowances
 Sales discounts
Expenses
 Cost Accounts
 Purchases
 Purchase returns
 Purchase allowances
 Purchase returns and allowances
 Purchase discounts
 Freight In
 Other Expense Accounts
 Salaries and wages
 Advertising expense
 Rent Expense
 Repairs and Maintenance
 Transportation Expense
Expense
 Other Expense Accounts
 Taxes and Licenses
 Depreciation Expense
 Insurance Expense
 Supplies Expense
 Utilities Expense
 Representation and Entertainment
 Postage and Communication
 SSS Premium
 Miscellaneous Expense
Financial Statement

 Balance Sheet (Statement of Financial Position)

 Income Statement
 Statement of Changes in equity
 Cash Flow Statement
 Notes to financial statements