Senior High School

Fundamentals of
Accountancy, Business
and Management 1
Quarter 3 - Module 4:
Types of Major Accounts

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 The Five Major Accounts &
The Chart of Accounts
Types of mMajor Accounts
What’s In

Activity 1: Review

Complete the statement.

In the previous module, I learned that _____________________________________

__________________________________________________
__________________________________________________
__________________________________________________
__________________________________________________
__________________________________________________

What’s New

Activity 2: Scrambled Words

Directions: Correct the scrambled words below.

1. Tangible and intangible items that the Company owns that have value.
 _______________ (EASSST)

2. Money that the Company owes to others.

 _______________ (ABLITILIESI)

3. Money the company earns from its sales of products or services, and interest and
dividends earned from marketable securities.
 _______________ (CINEMO)

4. Money the company spends to produce the goods or services that it it sells.
 _______________ (PEENSSEX)

5. That portion of the total assets that the owners or stock holders of the company
fully own; have paid for outright.
 _______________(YQUITE)

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 What Is It

There are five main types of accounts in accounting, namely: assets, liabilities,
capital / owner’s equity, income, and expense. Continue to read below to explore
on how each account can be further broken down into several categories.

FIVE TYPES OF MAJOR ACCOUNTS

1. ASSETS - These are all the economic resources owned by the company and are
expected for future gain. They include property and rights of value owned by the
company. Assets refer to items like cash, inventory, accounts receivable, buildings,
land, or equipment.

Assets can be categorized to Tangible and Intangible. Tangible Assets are the
physical entities that the business owns such as its land, buildings, vehicles,
equipment, and inventory. While Intangible Assets are the things that represent
money or value such as Accounts Receivables, Patents, Contracts, and Certificate of
deposit (CDs).

Two types of Assets:

1. Current Assets - cash and other assets that are expected to be converted to
cash within a year.

Examples:

 Cash includes coins, currencies, checks, bank deposits, and other cash
items readily available for use in the operations of the business.

 Cash equivalents are short-term investments that are readily

convertible to known amounts of cash which are subject to an
insignificant risk to changes in value.

 Marketable securities are stocks and bonds purchased by the

enterprise and are to be held for only a short span of time or duration.
They are usually purchased when a business has excess cash.

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 2. Non-Current Assets - an asset that is not likely to turn to unrestricted cash
within one year. It is also referred to as a long-term asset.

Examples:

 Long-term investments are assets held by an enterprise for the

accretion of wealth through capital distribution such as interests,
royalties, dividends and rentals, for capital appreciation or for other
benefits to the investing enterprise such as those obtained through
trading relationships.

 Property, Plant, and Equipment are tangible assets that are held by an
enterprise for use in the production or supply of goods or services, or
for administrative purposes.

a. Land - a piece of lot or real estate

b. Building - structure used to accommodate the office, store, or factory
c. Equipment - includes typewriter, air-conditioner, calculator, filing
cabinet, computer, electric fan, trucks, and cars used by the business
in its office or factory. Specific account titles may be used such as:
-office equipment,
-store equipment,
-delivery equipment,
-transportation equipment, and
-machinery and equipment.
d. Furniture and fixtures - include tables, chairs, carpets, curtains,
lamp and lighting fixtures. Specific account titles may be used
such as:
-office furniture and fixtures
- store furniture and fixtures

2. LIABILITIES - These include the debts or obligations payable to creditors and

other outsiders to which your company owes money. Liabilities are one of three
ways in which a business can acquire funding.

Two types of Liabilities:

1. Current Liabilities - amounts due to be paid to creditors within twelve months.

Examples:

 Accounts payable includes debts arising from the purchase of an asset

or the acquisition of services on account.

 Notes payable includes debts arising from the purchase of an asset or

the acquisition of services on account evidenced by a promissory note.

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  Loan Payable is a liability to pay the bank or other financing institution
arising from funds borrowed by the business from these institutions
payable within twelve months or shorter.

 Utilities payable is an obligation to pay utility companies for services

received from them. Examples of this are telephone services, electricity,
and water services.

 Unearned revenues represent obligations of the business arising from

advance payments received before goods or services are provided to
the customer. This will be settled when certain goods or services are
delivered or rendered.

 Accrued liabilities include amounts owed to others for expenses already

incurred but are not yet paid. Examples of these are salaries payable,
utilities payable, taxes payable, and interest payable.

2. Non-current Liabilities - are long term liabilities or obligations which are

payable for a period longer than one year.

Examples:

 Mortgage payable is a long-term debt of the business with security or

collateral in the form of real properties.

 Bonds payable is a certificate of indebtedness under the seal of a

corporation, specifying the terms of repayment and the rate of interest
to be charged.

3. OWNER’S EQUITY - defines how much your business is currently worth.

Owner’s Equity or Capital is an account bearing the name of the owner representing
the original and additional investment of the owner of the business. It is increased by
the amount of net income earned during the year and decreased by the cash or other
assets withdrawn by the owner as well as the net loss incurred during the year.
Drawing represents the withdrawals made by the owner of the business in cash or
other assets.

Two types of Equity:

1. Contribution (Investments) - may be start-up capital or a later infusion of cash.

2. Drawing (Withdrawals) - If a business is profitable, the owners often want

some of the profit returned to them.

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4. INCOME OR REVENUE - is money the business earns from selling a product or
service, or from interest and dividends on marketable securities. Other names for
income are revenue, gross income, turnover, and the "top line."

Net income is computed as revenue less expenses. Other names for net income
include profit, net profit, and the "bottom line." Income accounts are classified
as temporary or nominal accounts. This is because their balance is reset to zero at
the beginning of each new accounting period.

5. EXPENSES - these are money the company spends that allow a company to
operate. This may include advertising costs, utilities, rent, salaries and others. Like
revenue accounts, expense accounts are temporary accounts that collect data for
one accounting period and are reset to zero at the beginning of the next accounting
period.

A unique type of Expense account, Depreciation Expense, is used when

purchasing Fixed Assets. Costly items, such as vehicles, equipment, and computer
systems, are not expensed, but are depreciated over the life expectancy of the item.
A contra-account, Accumulated Depreciation, is used to offset the Asset account for
the item.

Examples:

 Salaries or wages expense include all payments made to employees or

workers for rendering services to a company.

 Utilities expense is an expense related to the use of electricity, fuel,

water, and telecommunication facilities.

 Supplies expense covers office supplies used by a business in the

conduct of its daily operations.

 Insurance expense is the expired portion of premiums paid on

insurance coverage such as premiums paid for health or life insurance,
motor vehicles, or others.

 Depreciation expense is the annual portion of the cost of tangible

assets such as buildings, machineries, and equipment charged as
expense for the year.

 Uncollectible accounts expense/doubtful accounts expense/bad debts

expense means the amount of receivables charged as expense for the
period because they are estimated to be doubtful of collection.

 Interest expenses are the amount of money charged to the borrower for
the use of borrowed funds.

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CHART OF ACCOUNTS

A chart of accounts is a list of all your company’s accounts used, and is listed
together in one place. The main account types include Assets, Liabilities, Owner’s
Equity, Income, and Expenses.

Here’s a sample chart of accounts list. This is a chart of accounts for a fictional
business: Ewing Cleaning Supply.

Figure 1: Chart of Accounts

Companies in different lines of business will have different looking charts of

accounts. The chart of accounts should give anyone who is looking at it a rough idea
of the nature of your business by listing all the accounts involved in your company’s
day-to-day operations.

The chart of accounts is designed to be a map of your business and its various
financial parts. A well-designed chart of accounts should separate out all the

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company’s most important accounts, and make it easy to figure out which
transactions get recorded in which account.

What’s More

Activity 3:

Identify each account if it is part of the Asset, Liability, Owner’s Equity, Income, or
Expense. Write your answers on the spaces provided before each number.

_________________ 1. Partner A, Drawings

_________________ 2. Prepaid Insurance
_________________ 3. Revenue
_________________ 4. Salaries
_________________ 5. Interest Payable
_________________ 6. Land
_________________ 7. Common Stock
_________________ 8. Bonds Payable
_________________ 9. Unearned Revenue
_________________ 10. Office Equipment
_________________ 11. Machinery Equipment
_________________ 12. Uncollectible accounts
_________________ 13. Partner B, Capital
_________________ 14. Wages
_________________ 15. Cash

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 What I Have Learned

Discuss the following terms based on your own understanding.

1. Owner’s Equity-

2. Revenue or Income-

3. Assets-

4. Expenses-

5. Liabilities-

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 What I Can Do

Activity 4: My Personal Chart of Accounts

Applying the lessons you learned on the chart of accounts, create your fictional
business and make your very own chart of accounts. Follow the format below.

CHART OF ACCOUNTS

Account Account Title Account Account Title

Number Number

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Self-Check!

Great job! You have completed Module 4 successfully! Before going to the next
lesson, check the icon that best shows your learning experience.

I have understood the lesson well and I can even teach

what I learned to others.

I have understood the lesson but there are still other

things that I need to review and relearn.

I need to do additional work to be able to master the

lesson. I need help in some tasks.

If you checked the first icon, you are ready for module 5. If you have checked the
second icon, you need to review the things that you need to relearn. If you have
checked the third icon, it would be best if you read more and ask help from your
teacher, parents or peers in clarifying the lessons that you find it difficult. Be honest
so that you will truly improve.

Additional Activity

After doing the activities:

I noticed _______________________________

A question I have is _______________________________

I’m not sure _______________________________

I realized _______________________________

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 Assessment

Let us check how much you have learned from this module’s coverage.

Essay:

1. In your own opinion, why do companies need to create their personalized Chart of
Accounts?

2. In your own opinion, is it better for a company to acquire current or non-current

assets?

3. Differentiate current and non-current liabilities.

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