Types of Major Accounts

NAME: _______________________________________________________ DATE:___________________
Grade II Hyacinth-ABM 1
Fundamentals of Accountancy, Business, and Management 1

TYPES OF MAJOR ACCOUNTS
Lecture Proper
TYPES OF MAJOR ACCOUNTS:

 Assets are the resources owned and controlled by the firm.
 Liabilities are obligations of the firm arising from past events which are to be settled in the future.
 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.
 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.
 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.
1. ASSETS
Current vs. Non-Current

Assets
are assets that can be are assets that cannot be Tangible Assets vs. Intangible
realized (collected, sold, realized (collected, sold, Assets
used up) one year after used up) one year after are physical assets are non-physical
year-end date. Examples year-end date. Examples such as cash, assets such as
include Cash, Accounts include Property, Plant supplies, and patents and
Receivable, Merchandise and Equipment furniture and trademarks
Inventory, Prepaid (equipment, furniture, fixtures.
Expense, etc. building, land), long term
investments, etc.
 Account titles used for Asset Accounts
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.
 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.
 Short term investments are the investments made by the company that are intended to be sold
immediately.
Non-Current Assets
 Property, Plant and Equipment are long-lived assets which have been acquired for use in
operations.
 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.
2. LIABILITIES
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.
 Account titles used for Liability Accounts
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).
 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 is a liability account listing the amount of any loan debt you’ve taken out and haven’t
paid
 Mortgage Payable is the liability of a property owner to pay a loan. A long-term financing used to
purchased property.
3. 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.
 Account titles used for Equity Account
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.
4. INCOME
Income is the increase in resources resulting from performance of service or selling of goods. Income
increases equity.
Examples of Income Accounts:

a. Service revenue for service entities
b. Sales for merchandising
c. Manufacturing companies
5. EXPENSE
Expense is the decrease in resources resulting from the operations of business. Expenses decreases
equity in the accounting equation.
Examples of Expense Accounts:

a. Salaries Expense
b. Interest Expense
c. Utilities Expense
CHART OF ACCOUNTS
 A chart of accounts is a listing of the accounts used by companies in their financial records.
 The chart of accounts helps to identify where the money is coming from and where it is going.
 The chart of accounts is the foundation of the financial statements.
The following are the steps in the preparation of a basic chart of accounts:
1. Create two columns.
2. Prepare the assets first, then liabilities, then equity, then revenue and expenses.
3. List all assets, liabilities, equity, revenue and expenses account in the first column.
4. On the second column, choose an account code (discretion of the company).
5. On the third column, write the description for each account on when to use it.
An example of a chart of accounts is given below:
Assets
Account Code
Account Description
*may vary
Cash 1000 Use for actual cash transactions
Accounts Receivable 1200 Use for customers who will pay in the future
Inventory 1300 Use for items held for sale
Prepaid Expenses 1400 Use for expenses paid in advance
Supplies 1500 Use for items to be used in the future
Office Equipment 1600 Use for equipment that are used in the office
Store Equipment 1700 Use for equipment that are used in the store
Land 1800 Use for land used in operations
Liabilities
Accounts Payable 2000 Use for the debts of the company

Notes Payable 2100 Use for promissory notes issued by the
company
Salaries Payable 2200 Use for salaries to be paid in the future
Capital
Owner’s Capital 3000

Owner’s Withdrawal 4000
Service Revenue 5000 Use for earnings
Salaries Expense 6000 Use for salaries incurred, regardless of
payment
Utilities Expense 6100 Use for electricity and water expenses incurred
PRACTICE
Matching Type
Assets Accounts Receivable Intangible Assets
Liabilities Notes Receivable Property, Plant and Equipment
Owner’s Equity Rent Expense
Cash Prepaid Expense
____________ 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.
ENRICHMENT
Provide local examples. You can use the activity below. Identify where you classify the following items.
Account Title Current Asset Non-Current Tangible Intangible

Asset
1 Account Receivable
2 Building
3 Cash
4 Computer Equipment
5 Copyrights
6 Delivery Truck
7 Furniture & Fixtures
8 Store Supplies
9 Inventories
10 Land
11 Notes Receivable
12 Office Supplies
13 Accrued Income
14 Prepaid Insurance
15 Prepaid Rent
EVALUATION
Activity 1
Indicate whether it is an increase (+), decrease (-), or no effect on the asset, liabilities and equity accounts.
Assets Liabilities Equity

1. Investment of cash in the business ______ _______ _______
2. Purchase of computer equipment for cash ______ _______ _______
3. Billed a customer for services rendered _______ _______ _______
4. Paid salaries _______ _______ _______
5. Purchased office supplies on credit _______ _______ _______
6. Paid advertising expense _______ _______ _______
7. Paid rent in advance for 3 months _______ _______ _______
8. Received cash from customers on account _______ _______ _______
9. Withdrew cash for personal use _______ _______ _______
10. Invested land into the company _______ _______ _______
Activity 2
Identify if the account is an asset, liability, equity, income or expense and indicate its normal balance.
Account Asset Liabilities Owner’s Equity Income Expense Balance
1 Accounts Receivable
2 Accumulated Depreciation
3 Advertising Expense
4 Bonds Payable
5 Building
6 Cash
7 De Jesus, Capital
8 De Jesus, Drawing
9 Delivery Truck
10 Interest Payable
11 Inventories
12 Land
13 Mortgage Loans
14 Notes Payable
15 Notes Receivable
16 Office Supplies
17 Prepaid Expense
18 Rent Expense
19 Salaries Expense
20 Salaries Payable
21 Service Fees Income
22 Supplies Expense
23 Trading Securities
24 Unearned Income
25 Utilities Expense

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NAME: _____________________________________ DATE:_

Fundamentals of Accountancy, Business, and Management 1

TYPES OF MAJOR ACCOUNTS:

Current vs. Non-Current

 Account titles used for Asset Accounts

 Account titles used for Equity Account

Examples of Income Accounts:

Examples of Expense Accounts:

Accounts Payable 2000 Use for the debts of the company

Owner’s Capital 3000

Assets Accounts Receivable Intangible Assets

Liabilities Notes Receivable Property, Plant and Equipment

Owner’s Equity Rent Expense

Cash Prepaid Expense

____________ 1. It is the obligations of the company payable in money, goods or services.

Account Title Current Asset Non-Current Tangible Intangible

Assets Liabilities Equity

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