CHAPTER 4

Types of Major Account  If selling price is greater than

carrying amount, the difference is
Five Major Accounts
gain
1. Assets- economic resources you
 If the selling price is less than
control that have resulted from
carrying amount, the difference is
past events and can provide you
loss
with future benefits.
Balance Sheet- Statement of Financial
2. Liabilities- present obligations
Position
that have resulted from past
events and can require you to give - One of the components of a
up resources when settling them. complete set of financial
3. Equity- asset minus liabilities statements. The balance sheet
- Owner’s investment shows the financial position of a
4. Income- increase in economic business.
activities.  Assets
 Revenues- ordinary activities of a  Liabilities
business (sales, service fee)  Equity
 Gains- other items that meet the
Income Statement- Statement of Profit or
definition of income and may or
loss
may not arise in the course of the
ordinary activities of an entity. - Subcomponent of component of
5. Expense- decrease in economic comprehensive income, which is
activities. also one of the components of a
 Expenses- ordinary activities of a complete set of financial
business statement.
 Loss- other items that meet the - It shows profit or loss of a business
definition of expenses and may or Chart of Account- list of all the accounts
may not arise in the course of the used by a business
ordinary activities of an entity.
a. First Digit- major types of account
Note: b. Second Digit- account titles and the

 Carrying amount- net amount at sequence on how they are listed in

which an item is carried in the the chart of accounts

books of account
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c. Third Digit- if not zero, signifies l. Equipment- machineries, truck; etc

that the account is contra account m. Accumulated depreciation-
or an adjunct account equipment- total amount of
depreciation expenses recognized
ASSETS
since the equipment acquired and
a. Cash- money (cash on hand, cash made available for use
in bank)
LIABILITIES
b. Accounts Receivable- receivable
supported by oral or informal a. Accounts Payable- obligation
promise to pay. supported by oral or informal
c. Allowance for bad debts- aggregate promises to pay the debtor.
amount of estimated losses from b. Notes Payable- obligation
uncollectible accounts receivable. supported by written or formal
Allowance for doubtful account. promises to pay debtor in form of
d. Notes Receivable- supported by promissory notes
written or formal promises to pay c. Interest Payable- interest incurred
in the form of promissory notes. but not yet paid
e. Inventory- represents the good that d. Salaries Payable- already earned by
are held for sale by business employees but not yet paid by a
f. Prepaid Supplies- unused office business.
supplies e. Utilities Payable- utilities already
g. Prepaid Rent- advance payment used but not yet aid
h. Prepaid Insurance- cost of f. Unearned Income- income that
insurance paid in advance collected advance before they
i. Land- which the building of earned (nagbayad na bago mo pa
business has been constructer maibigay yung service)
- It is not depreciable
NOTE:
j. Building- structure owned by a
business for operation use  Receivable – ASSE

k. Accumulated depreciation-  Payable – LIABILITY

building- total amount of  Prepaid – ASSET
depreciation expenses recognized  Unearned – LIABILITY
since the building acquired and
made available for use
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EQUITY account receivable doubtful

allowance
a. Owner’s Capital/Equity- residual
h. Depreciation Expense- the portion
amount. Investment of owner to the
of the cost of a depreciable asset
business
that has been allocated
b. Owner’s Drawing- withdrawal
i. Advertising Expense- cost of
INCOME promotional or marketing activities

a. Service Fee- revenues earned from j. Insurance Expense- cost of

rendering services. insurance

b. Sales- revenues earned from sale of k. Taxes and Licenses- cost of

goods business and local taxes

c. Interest Income- revenues earned l. Transportation and Travel

from issuance of interest-bearing Expense- represent the necessary

receivables and ordinary cost of employees

d. Gains- income earned from sale of getting from one workplace to

assets another.
m. Interest expense- cost of borrowing
EXPENSES
money
a. Cost of Sales (COGS)- represent n. Miscellaneous Expense- represent
the value of inventories that have various small expenditure which do
been sold not warrant separate presentation
b. Freight-out- sellers cost of o. Losses- expense which may or may
delivering goods to customers not arise from the ordinary course
c. Salaries Expense- salaries earned
NOTE:
by employee for the services they
have rendered.  Earned – INCOME
d. Rent Expense- rentals that have  Incurred – EXPENSE
been used up  Unused – ASSET
e. Utilities Expense- cost of utilities  Used - EXPENSE
that have been used
f. Supplies Expense- cost of supplies
that have been used
g. Bad debt Expense- amount of
estimated losses from uncollectible