TYPES OF MAJOR ACCOUNTS

LUIS C. VIRAY
LEARNING COMPETENCIES

The learners should be able to

discuss the five major accounts.
The learners should be able to cite
examples of each type of account.
The learners should be able to
prepare a Chart of 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.
T-ACCOUNT

An account may be
depicted through “T-
account.” A “T-account” is
called as such because it
resembles the letter “T”.
THREE PARTS OF T-ACCOUNT
1. ACCOUNT TITLE – describes the
specific item of assets, liability, equity,
income or expense.
2. DEBIT SIDE – the left side of the
account.
3. CREDIT SIDE - the right side of the
account.
 CASH Account Title
DEBIT CREDIT
January 1, 2019 500
January 3, 2019 1,000 800 Jan. 4, 2019

Balance 700
The difference between total debits and credits.
Debits exceeds credit = DEBIT BALANCE Credit exceeds debit = CREDIT BALANCE

(The term credit(Cr) simply refers to the

right side of the account. It is sometimes referred to as the “value
parted with”)
(The term debit(Dr) simply refers to the left side of the account. It is
sometimes referred to as the “value
received”)
THE FIVE MAJOR ACCOUNTS

The five major accounts, also

called the elements of financial
statements, are actually the items in
the expanded accounting equation
discussed in the previous chapter.
Let us recall these items.
THE FIVE MAJOR ACCOUNTS

1. ASSETS – are the economic resources you

control that have resulted from past events
and can provide you with future economic
benefits.
2. LIABILITIES – are your present
obligations that have resulted from past
events and can require you to give up
resources when settling them.
THE FIVE MAJOR ACCOUNTS

3. EQUITY – is assets minus liabilities.

4. INCOME – is increase in economic
benefits during the period in the form of
increases in assets, or decreases in liabilities,
that results in increases in equity, excluding
those relating to investments by the business
owner.
COMPOSITION OF INCOME
Revenues arises in the course of the
ordinary activities of a business, e.g. sales
and service fees.
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.
EXAMPLE OF REVENUE
Your business sells barbeque. The
income you derived from selling
barbeque is called revenue (sales
revenue) because selling barbeque is
your main business (ordinary
business activity).
EXAMPLE OF GAIN
 One day, you decided to replace your old beach
umbrella. The umbrella has a carrying amount
of P2,000.00 in your book of accounts. You
were able to sell the old umbrella for P2,200.00.
The difference between the selling price and
carrying amount represents gain (P200.00). This
is because selling of umbrella is not your main
business (not your ordinary business activity).
THE FIVE MAJOR ACCOUNTS

5. EXPENSES – are decreases in

economic benefits during period in the
form of decrease in assets, or increases
in liabilities, that results in decreases in
equity, excluding those relating to
distributions to the business owner.
COMPOSITION OF EXPENSES

EXPENSES arise in the course of the

ordinary activities of a activities.
LOSSES represent other items that
meet the definition of expenses and
may or may not arise in the course of
the ordinary activities of the entity.
ACTIVITY

 On your notebook write at least 5 examples of:

Assets
Liabilities
Equity
Income
Expenses
CLASSIFICATION OF THE FIVE MAJOR ACCOUNTS

BALANCE SHEET INCOME

ACCOUNTS STATEMENT
ACCOUNTS
1. ASSETS 1.INCOME
2. LIABILITIES 2. EXPENSES
3. EQUITY
SAMPLE BALANCE SHEET
PADILLA’S SALON
BALANCE SHEET
AS OF DECEMBER 31, 2020
ASSET
CASH 190,000
PREPAID RENT 50,000
PREPAID SUPPLIES 20,000
EQUIPMENT 180,000
TOTAL ASSETS 440,000
LIABILITIES
NOTES PAYABLE 100,000
UTILITIES PAYABLE 3,000
INTEREST PAYABLE 1,000
TOTAL LIABILITIES 104,000
EQUITY
OWNERS EQUITY 336,000
TOTAL EQUITY 336,000

TOTAL LIABILITIES AND EQUITY 440,000

SAMPLE INCOME STATEMENT
PADILLA’S SALON
BALANCE SHEET
AS OF DECEMBER 31, 2020
INCOME
SERVICE FEES 100,000
GAIN 110,000
RENT INCOME 10,000
TOTAL INCOME 220,000

EXPENSES
SALARIES EXPENSE (30,000)
SUPPLIES EXPENSE (10,000)
UTILITIES EXPENSE (3,000)
INTEREST EXPENSE (1,000)
DEPRECIATION EXPENSE (3,000)
TOTAL EXPENSES (47,000)

PROFIT FOR THE PERIOD 173,000

CHART OF ACCOUNTS

A chart of accounts is a list of all the

accounts used by a business.
The following is an example of a
basic chart of accounts.
BALANCE SHEET ACCOUNTS

 ASSETS
 CASH
 ACCOUNTS RECEIVABLE
 ALLOWANCE FOR BAD DEBTS
 NOTES RECEIVABLES
 INVENTORY
 PREPAID SUPPLIES
 PREPAID RENT
 PREPAID INSURANCE
 LAND
 BUILDING
 ACCUMULATED DEPRECIATION-BUILDING
 EQUIPMENT
 ACCUMULATED DEPRECIATION-EQUIPMENT
BALANCE SHEET ACCOUNTS

 LIABILITIES

ACCOUNTS PAYABLE
NOTES PAYABLE
INTEREST PAYABLE
SALARIES PAYABLE
UTILITIES PAYABLE
UNEARNED INCOME (ADVANCE
PAYMENT)
BALANCE SHEET ACCOUNTS

 EQUITY

 OWNER’S CAPITAL
 OWNER’S DRAWING
INCOME STATEMENT ACCOUNTS

INCOME

Service Fees
Sales
Interest Income
Gains
INCOME STATEMENT ACCOUNTS
 Expenses
 Cost of Sales
 Freight-Out
 Salaries Expense
 Rent Expense
 Utilities Expense
 Supplies Expense
 Bad Debt Expense
 Depreciation Expense
 Advertising
 Insurance
 Taxes and Licenses
 Transportation and Travel Expense
 Interest
 Miscellaneous
 Losses
DEFINITION OF TERMS
 Balance Sheet Accounts
 Assets
 Cash – includes money or its equivalent that is readily

available for unrestricted use, e.g., cash on hand and cash

in bank.
 Accounts receivable – receivables supported by oral or

informal promises to pay.

 Allowance for bad debts – the aggregate amount of

estimated losses from uncollectible accounts receivable .

Another term is “allowance for doubtful accounts”.
DEFINITION OF TERMS
 BalanceSheet Accounts
 Assets
Notes receivable – receivables supported by written
or formal promises to pay in the form of promissory
notes.
Inventory – represent the goods that are held for sale

by a business.
Prepaid supplies – represent the cost of unused

office and other supplies.

Prepaid rent – rent paid in advance
DEFINITION OF TERMS
 BalanceSheet Accounts
 Assets

Land – the lot on which the building of the

business has been constructed or a vacant
lot which is to be used as future plant site.
Land is not depreciable.
Building – the structure owned by a

business for used in its operation.

DEFINITION OF TERMS
 BalanceSheet Accounts
 Assets

 Equipment - consists of various assets

such as:
a) Machineries and other factory equipment
b) Transportation equipment (vehicles, delivery
trucks)
c) Office equipment (desk, cabinet, chairs)
d) Computer equipment
e) Furniture and fixtures
DEFINITION OF TERMS
 Balance Sheet Accounts
 Liabilities
Accounts Payable – obligations supported by oral or
informal promises to pay by the debtor.
Noted Payable – obligations supported by written or

formal promises to pay by the debtor in the form of

promissory notes.
Interest Payable – interest incurred but not yet paid.
DEFINITION OF TERMS
 Balance Sheet Accounts
 Liabilities

Utilities Payable – utilities already used

but not yet paid. (electricity, water,
telephone, internet, cable)
Unearned Income – items related to

income that were collected in advance

before they are earned.
DEFINITION OF TERMS
 Balance
Sheet Accounts
 EQUITY

Owner’s Capital (Owner’s Equity)– the

residual amount after deducting liabilities
from assets.
Owner’s Drawings – this account is used

to record the temporary withdrawals of the

owner during the period.
DEFINITION OF TERMS
 IncomeStatement Accounts
 INCOME

Service Fees – revenue earned from

rendering services. (Spa, Salon)
Sales – revenues earned from the sales

of goods. (Barbeque, Souvenir)

DEFINITION OF TERMS
 IncomeStatement Accounts
 INCOME

Interest Income – revenues earned from

the issuance of interest-bearing
receivables.
Gains – income earned from the sales of

assets.
DEFINITION OF TERMS
 Income
Statement Accounts
 EXPENSES

Cost of Sales – represents the value of

inventories that have been sold during the
accounting period.
Freight Out – represents the sellers cost of

delivering goods to customers. Other terms

for freight out are delivery
expense/transportation out
DEFINITION OF TERMS
 Income
Statement Accounts
 EXPENSES

Salaries expense - represents the salaries

earned by employees for the service s they
rendered during the accounting period.
Rent expense – represents the rentals that

have been used up during the accounting

period.
DEFINITION OF TERMS
 Income
Statement Accounts
 EXPENSES

Utilities expense – represent cost of

utilities that have been used during the
accounting period. (electricity, water)
Supplies expense – represent the cost of

supplies that have been used during the

period.
DEFINITION OF TERMS
 Income
Statement Accounts
 EXPENSES

Bad debt expense- the amount of estimated

losses from uncollectible accounts
receivable during the period.
Depreciation expense - the portion of the

cost of a depreciable asset that has been

allocated on the current period.
DEFINITION OF TERMS
 Income
Statement Accounts
 EXPENSES

Advertising expense – represent the cost of

promotional or marketing activities during
the period.
Insurance expense – represent the cost of

insurance pertaining to the current

accounting period.
DEFINITION OF TERMS
 Income
Statement Accounts
 EXPENSES
Taxes and Licenses – represent the cost of
business and local taxes required by the
government for the conduct of business.
Transportation Expense – represents the
necessary and ordinary cost of employees
getting from one workplace to another.
DEFINITION OF TERMS
 Income
Statement Accounts
 EXPENSES
Travel expense - represent the cost incurred
when travelling on business trips.
Interest expense – represent the cost of
borrowing money.
Miscellaneous – represent various small
expenditure which do not warrant separate
presentation.
ASSIGNMENT: ACCOUNT TITLES
PART 1. ASSET ACCOUNT
1. A Customer bought barbeque worth P500.00 from your
barbeque business. He told you that he will pay for it next week.
______________
2. You purchased a barbeque grill worth P2,000.00. _________
3. You purchased table napkins worth P300.00 in your barbeque
operation. ___________
4. You purchased pork worth P5,000.00 to be marinated and sold
as barbeque. ________
5. You are renting a space for your barbeque stand. The lease
contract required you to pay P15,000.00 rent in advance.
_________
ASSIGNMENT: ACCOUNT TITLES
PART 2. LIABILITY ACCOUNT
1. Your electricity bill is P2,000.00 for the month of January.
The bill is not yet paid. _______
2. Your loan from Mr. Bombay requires repayment within 30
days plus 20% monthly interest. ________
3. You ran out of inventory of barbeque, so you went to Mr.
Porky’s Meat Shop to buy pork. You don’t have the available
cash, so you promised orally that you will be paying for the
pork, worth P800.00, next week. ________
4. Monthly salaries earned of employees amounting to
P7,000.00. However, the employees has not yet claimed the
salary. ________
ASSIGNMENT: ACCOUNT TITLES
PART 3. EQUITY ACCOUNT
1. You invested P900.00 to your barbeque business. ___
2. You made temporary withdrawals of P200.00 from your
barbeque business. _______

PART 4. INCOME ACCOUNT

3. You sold barbeque worth P600.00. _________

4. You earned 1% monthly interest on the loan you have

extended to your friend. __________
ASSIGNMENT: ACCOUNT TITLES
PART 5. EXPENSE ACCOUNT
1. The cost of the barbeque that was sold for P500.00 is
P300.00. ______
2. Your business has a hotline. Customers can order barbeque
through phone call, text messages, or Facebook Messenger.
No delivery charges. During the period, the cost of gasoline
for your motorcycle, attributable to delivering barbeque to
customers, amounted to P100.00. _______
3. You hired a helper in your barbeque business. Your
employee earns a compensation of P7,000.00 a month.
______
ASSIGNMENT: ACCOUNT TITLES
PART 5. EXPENSE ACCOUNT
4. You are renting a space for your barbeque stand. The rent is
P5,000.00 per month.
5. After a month of operations, your business received
electricity bill of P2,000.00 and water bill of P300.00. __
6. You paid Taylor Swift P5,000.00 to endorse your barbeque
business. _____
7. You have obtain a one year fire insurance for your barbeque
business. _______
CORRECT ANSWERS
Part 1
1. Accounts Receivable

2. Equipment

3. Prepaid Supplies

4. Inventory

5. Prepaid Rent

Part 2
6. Utilities Payable

7. Interest Payable

8. Accounts Payable

9. Salaries Payable
CORRECT ANSWERS
Part 3
1. Owner’s Capital
2. Owner’s Drawing
Part 4
3. Sales
4. Interest Income
Part 5
5. Cost of Goods Sold or Cost of Sales
6. Freight-out
7. Salaries Expense
8. Rent Expense
9. Utilities Expense
10. Advertising Expense
11. Insurance Expense
ACTIVITY

Instruction: Indicate the classifications of

the accounts listed below as either
ASSET, LIABILITY, EQUITY,
INCOME or EXPENSE account under
COLUMN A and for COLUMN B
classify the account if it is under
BALANCE SHEET account or
INCOME STATEMENT account.
 ACCOUNT TITLES COLUMN A COLUMN B
1. OFFICE EXPENSE
2. PREPAID SUPPLIES
3. INVENTORY
4. OWNER’S CAPITAL
5. ADVERTISING EXPENSE
6. RENT INCOME
7. INTEREST RECEIVABLE
8. INTEREST EXPENSE
9. PREPAID RENT
10. ACCOUNTS PAYABLE
11. UNEARNED INCOME
12. CASH
13. NOTES RECEIVABLE
14. NOTES PAYABLE
15. DEPRECIATION
16. PREPAID INSURANCE
 ACCOUNT TITLES COLUMN A COLUMN B
17. GAINS
18. ACCOUNTS RECEIVABLES
19. LAND
20. BUILDING
21. FURNITURE AND FIXTURE
22. RENT PAYABLE
23. TAXES AND LICENSES
24. TRANDPORTATION EQUIPMENT
25. OFFICE EQUIPMENT
CORRECT ANSWERS
1. EXPENSES INCOME STATEMENT
2. ASSETS BALANCE SHEET
3. ASSETS BALANCE SHEET
4. EQUITY BALANCE SHEET
5. EXPENSES INCOME STATEMENT
6. INCOME INCOME STATEMENT
7. ASSETS BALANCE SHEET
8. EXPENSE INCOME STATEMENT
9. ASSET BALANCE SHEET
10. LIABILITY BALANCE SHEET
11. LIABILITY BALANCE SHEET
12. ASSET BALANCE SHEET
13. ASSET BALANCE SHEET
CORRECT ANSWERS
14. LIABILITY BALANCE SHEET
15. EXPENSE INCOME STATEMENT
16. ASSET BALANCE SHEET
17. INCOME INCOME STATEMENT
18. ASSETS BALANCE SHEET
19. ASSETS BALANCE SHEET
20. ASSETS BALANCE SHEET
21. ASSETS BALANCE SHEET
22. LIABILITY BALANCE SHEET
23. EXPENSES INCOME STATEMENT
24. ASSET BALANCE SHEET
25. ASSET BALANCE SHEET