2-1

Chart of Accounts
 List of all the accounts used by a
business.
 Major Types of Accounts include Assets,
Liabilities, Equity, Revenue and Expenses
• Account numbers are assigned to the
accounts to facilitate recording, cross
referencing, and retrieval of information.
 2-2

Elements of Financial Statements

 The elements directly related to financial
position (balance sheet)
 Assets 
 Liabilities 
 Equity
 The elements directly related to
performance (income statement)
 Income 
 Expenses
 2-3

 Assets. An asset is a resource controlled by the entity

as a result of past events and from which future
economic benefits are expected to flow to the entity.
 Liability. A liability is a present obligation of the entity
arising from past events, the settlement of which is
expected to result in an outflow from the entity of
resources embodying economic benefits.
 Equity. Equity is the residual interest in the assets of the
entity after deducting all its liabilities.
 2-4

Current and non-current classification

 An entity must normally present a classified
statement of financial position, separating
current and non-current assets and liabilities,
unless presentation based on liquidity provides
information that is reliable In either case, if an
asset (liability) category combines amounts that
will be received (settled) after 12 months with
assets (liabilities) that will be received (settled)
within 12 months, note disclosure is required
that separates the longer-term amounts from the
12-month amounts.
 2-5

Current Assets
 expected to be realized in the entity's
normal operating cycle held primarily
for the purpose of trading expected to
be realized within 12 months after the
reporting period cash and cash
equivalents (unless restricted).
 All other assets are non-current.
 2-6

Examples of Current Assets

 Cash
 Cash Equivalents
 Accounts Receivable
 Allowance for Doubtful Accounts –
(contra account)
 Notes Receivable
 Inventories
 Prepaid Expenses
 2-7

Examples of Non-current Assets

 Property, Plant & Equipment
 Accumulated Depreciation – (contra
account)
 Intangible Assets
 2-8

Current Liabilities
 expected to be settled within the
entity's normal operating cycle held for
purpose of trading due to be settled
within 12 months for which the entity
does not have the right at the end of
the reporting period to defer settlement
beyond 12 months.
 Other liabilities are non-current.
 2-9

Examples of Non-current
Liabilities
 Mortgage (Loans) Payable
 Bonds Payable
 2-10

 Income. Income is increases in economic

benefits during the accounting period in the form
of inflows or enhancements of assets or
decreases of liabilities that result in increases in
equity, other than those relating to contributions
from equity participants.
 Expense. Expenses are decreases in economic
benefits during the accounting period in the form
of outflows or depletions of assets or
incurrences of liabilities that result in decreases
in equity, other than those relating to
distributions to equity participants.
 2-11

The General Ledger

 It is a complete collection of all the accounts
of a company
 Accounts are individually numbered for easy
reference
 It is used to collect the information about all
of the transactions affecting a specific
account
 A cumulative, running balance is maintained
when using the 3-column type
 2-12

Categories of
General Ledger Accounts
The five types of accounts fall into one of
two categories

Real
Real Accounts
Accounts

Nominal
Nominal Accounts
Accounts
 2-13

Real Accounts
 This category includes Assets,
Liabilities, and Equities (i.e., Balance
Sheet accounts)

 Accounts are permanent.

 Account balances are carried forward

from one fiscal year to the next.
 2-14

Nominal Accounts
 Nominal accounts include revenues
and expenses.
 Nominal accounts are temporary.
 Nominal account balances are closed
out to zero at the end of the fiscal year.
 2-15

Numbering Accounts
The listing of all accounts and their
account numbers is called the chart of
accounts.
accounts
 2-16

Numbering Accounts
The listing of all accounts and their
account numbers is called the chart of
accounts.
accounts
A typical account numbering scheme
might appear as follows:
Assets
Assets 100-199
100-199 Revenues
Revenues 400-499
400-499
Liabilities
Liabilities 200-299
200-299 Expenses
Expenses 500-599
500-599
Equities
Equities 300-399
300-399
 2-17

Posting to the GL
Example
GENERAL JOURNAL
Page: 1
Date Description PR Debit Credit
1-Jan Cash 10,000
Notes Payable 10,000
to record loan from bank

Start with the journal entry from the

General Journal.
 2-18

Posting to the GL
Example
GENERAL JOURNAL
Next, find the appropriate Page: page 1
Date in the General
Description Ledger
PR forDebit
Cash. Credit
1-Jan Cash 10,000
Notes Payable 10,000
to record loan from bank

ACCOUNT NAME: CASH ACCOUNT No. 100

Date Description PR Debit Credit Balance
Beginning Balance 0 0
 2-19

Posting to the GL
Example
GENERAL JOURNAL
Post the account referencePage:
number. 1
Date Description PR Debit Credit
1-Jan Cash 100 10,000
Notes Payable 10,000
to record loan from bank

ACCOUNT NAME: CASH ACCOUNT No. 100

Date Description PR Debit Credit Balance
Beginning Balance 0 0
 2-20

Posting to the GL
Example
GENERAL JOURNAL
Page: 1
Date Description PR Debit Credit
1-Jan Cash 100 10,000
Notes Payable 10,000
to record loan from bank

ACCOUNT NAME: CASH ACCOUNT No. 100

Date Description PR Debit Credit Balance
Beginning Balance 0 0
1-JanLoan G1 10,000

Post the transaction info to the GL.

 2-21

Posting to the GL
Example
GENERAL JOURNAL
Page: 1
Date Description PR Debit Credit
1-Jan Cash 100 10,000
Notes Payable 10,000
to record loan from bank

ACCOUNT NAME: CASH ACCOUNT No. 100

Date Description PR Debit Credit Balance
Beginning Balance 0 0
1-JanLoan G1 10,000 10,000

Update the General Ledger balance.

 2-22

Posting to the GL
Example
GENERAL JOURNAL
Next, find the Notes Payable
Page: 1
Date pageDescription
in the GeneralPRLedger.
Debit Credit
1-Jan Cash 100 10,000
Notes Payable 10,000
to record loan from bank

ACCOUNT NAME: Notes Payable ACCOUNT No. 201

Date Description PR Debit Credit Balance
Beginning Balance 0 0
 2-23

Posting to the GL
Example
GENERAL JOURNAL
Post the account referencePage:
number. 1
Date Description PR Debit Credit
1-Jan Cash 100 10,000
Notes Payable 201 10,000
to record loan from bank

ACCOUNT NAME: Notes Payable ACCOUNT No. 201

Date Description PR Debit Credit Balance
Beginning Balance 0 0
 2-24

Posting to the GL
Example
GENERAL JOURNAL
Page: 1
Date Description PR Debit Credit
1-Jan Cash 100 10,000
Notes Payable 201 10,000
to record loan from bank

ACCOUNT NAME: Notes Payable ACCOUNT No. 201

Date Description PR Debit Credit Balance
Beginning Balance 0 0
1-JanLoan G1 10,000

Post the transaction info to the GL.

 2-25

Posting to the GL
Example
GENERAL JOURNAL
Page: 1
Date Description PR Debit Credit
1-Jan Cash 100 10,000
Notes Payable 201 10,000
to record loan from bank

ACCOUNT NAME: Notes Payable ACCOUNT No. 201

Date Description PR Debit Credit Balance
Beginning Balance 0 0
1-JanLoan G1 10,000 10,000

Update the General Ledger balance.

 2-26

Posting to the GL
Example
GENERAL JOURNAL
Examine the next journalPage:
entry. 1
Date Description PR Debit Credit
15-Jan Trucks 9,500
Cash 9,500
to record purchase of truck

ACCOUNT NAME: CASH ACCOUNT No. 100

Date Description PR Debit Credit Balance
Beginning Balance 0 0
1-JanLoan from bank G1 10,000 10,000
 2-27

Posting to the GL
Example
GENERAL JOURNAL
Record the account reference.
Page: 1
Date Description PR Debit Credit
15-Jan Trucks 9,500
Cash 100 9,500
to record purchase of truck

ACCOUNT NAME: CASH ACCOUNT No. 100

Date Description PR Debit Credit Balance
Beginning Balance 0 0
1-JanLoan from bank G1 10,000 10,000
 2-28

Posting to the GL
Example
GENERAL JOURNAL
Page: 3
Date Description PR Debit Credit
15-Jan Trucks 9,500
Cash 100 9,500
to record purchase of truck

ACCOUNT NAME: CASH ACCOUNT No. 100

Date Description PR Debit Credit Balance
Beginning Balance 0 0
1-JanLoan from bank G1 10,000 10,000
15-JanPurchase of truck G3 9,500

Post the entry to the GL.

 2-29

Posting to the GL
Example
GENERAL JOURNAL
Page: 3
Date Description PR Debit Credit
15-Jan Trucks 9,500
Cash 100 9,500
to record purchase of truck

ACCOUNT NAME: CASH ACCOUNT No. 100

Date Description PR Debit Credit Balance
Beginning Balance 0 0
1-JanLoan from bank G1 10,000 10,000
15-JanPurchase of truck G3 9,500 500

Update the General Ledger balance.

 2-30

TRIAL BALANCE
 Used to periodically (monthly) test
whether the General Ledger is in
balance.
 Consists of a listing of all the balances
of the different accounts (assets,
liabilities, owner’s equity, revenues and
expenses) as of a specific date.
 All Debit balances are in one column.
 All Credit balances are in another column.
 2-31

Purpose of the Trial Balance

1. To check the accuracy of posting (recording
in the ledger) by testing the equality of the
debits and credits.
2. It aids in locating errors in posting.
3. Acts as the first step in the preparation of
financial statements.
4. Serves as working paper that accountants
use as a basis while preparing financial
statements.
 2-32

 A balanced trial balance (total debit column

is equal to the credit column) does not
necessarily mean that no errors have been
committed. The following errors cannot be
detected by the trial balance:
 No entry was made for a given transaction.
 A journal entry was not posted to the general
ledger.
 A journal entry was posted twice.
 Incorrect accounts were used to record a given
transactions.
 Incorrect amounts were recorded for a given
transaction.
2-33
2-34
 2-35

EXERCISE
 Prepare a Trial Balance from the
following ledger accounts on the
next slide of LIPAD
CONSULTANCY SERVICES.
Accounts Payable 5,000.00
2-36

Accounts Receivable 6,500.00

Cash 2,000.00
Lipad, Capital 10,000.00
Rent Expense 200.00
Salary Expense 600.00
Lipad, Drawing 500.00
Office Equipment 2,500.00
Supplies Expense 1,400.00
Transportation Expense 1,800.00
Office Furniture 5,000.00
Service Income 6,000.00
Utilities Expense 100.00
Postage Expenses 150.00
Miscellaneous Expense 250.00