FIVE ACCOUNTING ELEMENTS 2.

Building – the structure owned by the

business used in the operation of business.
Real Accounts Nominal Accounts 3. Furniture and Fixture – long-lived items
1. Assets 4. Expense used by the business including store
2. Liabilities 5. Revenue/Income furnishings, such as showcases, counters,
3. Capital/Owner’s Equity containers, display racks, as well as
furniture used for office purposes such as
REAL ACCOUNTS desks, chairs and cabinets.
ASSETS – are resources or things of value owned by the 4. Equipment – consists of what generally
business. It is recorded normally at the debit balance. might be called the machinery used in the
business such as computers, delivery
a. CURRENT ASSETS – are those assets which can equipment or many others.
be reasonably converted into cash within a
short period of time. LIABILITIES – are present obligations to pay cash or cash
1. Cash – any item on hand with monetary equivalents by an entity. In other words, they represent
value that a bank will accept for deposit and claims against the assets of the business. It is recorded
all amounts currently deposit the bank in normally at the credit balance.
the name of business. a. CURRENT LIABILITIES – liabilities that is
2. Accounts Receivable – the amounts expected to be settled in the normal course of
collectible on open accounts of the the enterprise’s operating cycle and within
customers. twelve months of the statement of financial
3. Notes Receivable – a promissory note position date.
received by the business from its debtors or 1. Accounts Payable – an obligation or debt to
customers. A promissory note is a written creditors for money borrowed or
promise to pay a certain amount on merchandise and other assets bought on
specified or determinable date. credit. Examples are obligations arising from
4. Accrued Interest Receivable – the interest purchases on account.
earned on note receivable but not yet 2. Notes Payable – a promissory note issued
received in cash. by the business to its creditors for money
5. Inventories – asset held for sale in the borrowed or merchandise and other assets
normal operation of the business, in the bought on credit.
process of production for sale, or in the 3. Accrued Interest Payable – the interest
form of materials or supplies to be incurred in the current period but not yet
consumed in the production process or in paid.
rendering services. 4. SSS Premium Payable – representative of
6. Prepaid Supplies – various supplies which the amount of employee and employer
have been bought for use in the office but contribution to SSS which are not yet paid.
are still unused. 5. Withholding Tax Payable – the amount of
income tax withheld from the salary of
b. NONCURRENT ASSETS – these are assets that employee in behalf of BIR that the employer
do not meet the criteria of current asset. has to remit to BIR on the specified date.
Generally, they include tangible, intangible,
operating and financial assets of a long – term b. NONCURRENT LIABILITIES – it is generally the
nature. portion of payable beyond one year of a long-
1. Land – the site owned by the business on term liability.
which the business building is constructed.
This plant asset is not subject to OWNER’S EQUITY – the residual amount after
depreciation. All other plant assets are deducting liabilities from assets. It comprises the capital
subject to depreciation. contribution and withdrawals by the owner. It is
increased by capital contribution of the owner and net
income of the business, and decreased by the owner’s b. Supplies Expense – the amount of supplies
withdrawals and net losses of the business. consumed or used by the business during
the period.
- Owner’s equity is described as owner’s capital
c. Salaries and Wages Expense – the amount
(sole proprietorship), partner’s capital (partnership),
paid to services rendered by the employees
and shareholder’s equity (corporation). The normal
in the operation of the business.
balance of these accounts is credit balance.
d. Insurance Expense – the amount of
a. Drawing – is a temporary account used to
insurance policy incurred during the current
record initially the amount taken by the
period.
owner from the business. This is closed to the
e. Taxes and Licenses Expense – the cost of
capital account of the owner at the end of the
local as well as national taxes that are
accounting period.
incurred and required to be paid in
NOMINAL ACCOUNTS connection with the conduct of business.

REVENUE – represents the earnings of the business

from sales of goods or service rendered. They are
recorded normally at the credit balance. Also, term as
INCOME.

a. Sales – an account used to summarize sales

of goods of a trade or merchandising
business. This includes cash sales and sales
on account.
b. Service Income – the earnings derived from
service rendered by a servicing business to
its customers. This includes cash and cash
on account.
c. Professional Fee – the earnings derived
from services rendered by a professional or
professional servicing firm to its clients
which could be in cash or in collectibles.
d. Interest Income – the earnings representing
the time value of money derived from the
promissory notes received by the business,
whether in cash or collectible in the future.
e. Rent Income – the income earned from
allowing others to use the property or
facility of the business.
f. Gain or Sale of other Assets – the income
derived from the sales of assets used in the
business operation. There is gain on sale if
the proceeds exceed the book of value or
cost of the disposed asset.

EXPENSES – are costs incurred in conducting the

business activities. It is normally recorded at the debit
balance.

a. Cost of Sales – the value of merchandise

sold.