Types of major accounts

1. TYPES OF MAJOR ACCOUNTS
ASSETS
- Are resources owned by the enterprise as a result of
past events and from which future economic benefits
are expected to flow to the enterprise. In short, they are
properties and rights owned by the firm. There are two
major classifications of assets: Current Assets and Non-
current assets

2. A. CURRENT ASSETS
- Include cash and those assets which can be readily
converted into cash or sold or consumed within
one year or the normal operating cycle whichever is
longer. Normal operating cycle refers to the time
span during which cash is used to acquire goods
and services, which in turn are sold to customers,
who in turn pay for their purchases with cash.

3. Common examples include the following:
1. Cash – normally consists of coins and currencies
on hand, money orders and some checks from
customers, and deposits in bank accounts.
2. Marketable Securities – also known as
Temporary Investments. These are short-term
investments of funds which are available for
current operations and intended to be held for
not more than one year.

4. 3. Receivables – represent amounts collectible from
customers, clients and other persons for goods,
services or money given. These include:
a. Accounts Receivable – these are collectibles from
customers arising from sale of goods or services on
open accounts without any formal written promise
to pay.

5.  Allowance for Doubtful Accounts, sometimes
termed as Allowance for Bad Debts, is a contra-
asset account used to record accumulated
balance of customers’ accounts that are doubtful
of collectability. It reduces accounts receivable if
it remains uncollected at the end of the
accounting period. It should be emphasized that
this is not an asset but rather a contra-asset
account.

6. b. Notes Receivable – these are collectibles which
are supported by formal promises to pay in the
form of promissory notes.
c. Other Receivables such as Accrued interest
receivable, Advances to officers and employees,
and Dividends Receivable.

7. 4. INVENTORIES
- Are assets that are held for sale in the ordinary
course of business, in the process of production
for such sale or in the form of materials or
supplies to be consumed in the production
process or in rendering of services.
5. PREPAID EXPENSES
- Are expenses paid and recorded as assets before
they are used or consumed. Examples of these
expenses paid in advance include Prepaid rent,
Prepaid Insurance, and Prepaid advertising.

8.  Part of this sub-classification is SUPPLIES such as
stationery, ball pens, erasers, envelopes and
other supplies not yet used. It can be in the form
of Office Supplies or Store Supplies depending on
its purpose.

9. B. NON-CURRENT ASSETS
-include tangible, intangible, operating and financial
assets of a long term nature. Actually, any asset that
cannot be classified as current should be classified as
non-current.
1. Fixed Assets – also known as Property, Plant &
Equipment (term normally used for a manufacturing
firm). These are tangible assets which are held by an
enterprise for used in production or supply of goods
and services, for rental to others, or for administrative
purposes, and are expected to be used for more than
one accounting period.

10. a. Land – a lot or real estate owned and used by a
firm as building site, parking area and other
business operations.
b. Building – structure used to house the office,
store or factory
c. Equipment – includes among others:
 Machinery – may be composed of stamping
machines, ovens, conveyors, lathes, etc.
 Furniture & Fixtures – tables, chairs, lighting
fixtures, wall decors, etc.

11.  Office Equipment – typewriters, calculator,
computers, etc.
 Store Equipment – cash registers, weighing scales,
etc.
 Delivery Equipment – truck, pick-ups, vans, forklifts,
etc.
 Accumulated Depreciation – is a contra-asset
account representing usage of asset or expired cost
of the asset up to the present. This is a deduction
from the appropriate fixed asset account(except
land). Like allowance for doubtful accounts, this is
NOT an asset rather a contra-asset account.

12. d. Non-productive property or property no longer
used in operations like plant facilities which have
been idle for an extended period or those
abandoned but not physically retired. These are
simply known as “IDLE ASSETS”
e. Damaged inventory not yet declared as loss of
the enterprise

13. LIABILITIES
Liabilities are present obligations of an enterprise
arising from past transactions or events, the sett
lement of which is expected to result in an outflow
from the enterprise or resources embodying
economic benefits. Like assets, liabilities have two
major classification: Current Liabilities and Non-
Current Liabilities

14. A. Current Liabilities
- Include obligations which are expected to be settled
in the normal course of the enterprise’s operating
cycle, and obligations which are due to be settled
within one year from the balance sheet date.
Examples include:
1. Accounts Payable – indebtedness representing
amounts due to trade creditors as a result of the
purchase of merchandise and/or services. Trade
accounts payable, which refer to indebtedness that
arise from purchase of goods, materials, supplies or
services in an open charge account, that is, it is not
evidenced by any written promise to pay.

15. When a promissory note evidences the
indebtedness , it would be more appropriate to
term it as Notes Payable.
2. Communications Payable – may include
obligations to companies for postage, telephone
and telegraph and similar services received by the
business
3. Utilities Payable – obligations to utility
companies like electric companies, water
companies

16. 4. Taxes and Licenses Payable – payables to the
government in the form of business and transfer
taxes, income taxes, business permits, etc.
5. Unearned Revenues – represent obligations for
goods or services that a company must provide or
deliver in a future accounting period in return for
an advance payment from a customer like in the
case of Unearned Interest Income, Unearned Rent
Income, and Unearned Subscriptions Revenue

17. 6. Accrued Expenses – also known as accrued
liabilities, these are expenses that have been
incurred but not yet paid like in the case of Accrued
Salaries Payable and Accrued Interest payable.

18. B. NON-CURRENT LIABILITIES
- ASC SFAS No. 1 states that all other liabilities should
be classified as non-current liabilities. Examples
include:
1. Long-term Notes Payable – an obligation evidenced
by a promissory note that is to be paid beyond one
year or the normal operating cycle whichever is
longer
2. Bonds Payable – a liability supported by a formal
unconditional promise made under seal to pay a
specified sum of money at a determinable future
date, and to make periodic interest payments at a
stated rate until the principal is paid

19. 3. Mortgage Payable – a long term obligation to a
bank or other financial institutions secured by real
properties of the business

20. CAPITAL
Capital is the residual interest in the assets of the
enterprise after deducting all its liabilities. It is the
owner’s contribution to the business. The term
used in reporting a firm’s equity depends on the
kind of business organization it is. If it were a sole
proprietorship, the term OWNER’S EQUITY would
be more appropriate. On the other hand, a
partnership’s capital can be referred to as
PARTNERS’ EQUITY and for a corporation ,
STOCKHOLDERS’ EQUITY or SHAREHOLDERS’
EQUITY

21. A. (Name of Owner), CAPITAL – the total of the
initial and additional contributions made by the
owner, which is increased by profits and
decreased by losses and owner’s withdrawals
B. (Name of Owner), DRAWING or (Name of
Owner), WITHDRAWAL – represents cash or
other assets taken by the owner for personal
use. This has an effect of reducing the owner’s
capital

22. INCOME/ REVENUE
- Is increases in economic benefits during the
accounting period in the form of inflows or
enhancements or assets or decreases of liabilities
that result in increases in equity, other than those
relating to contributions from equity participants.
In other words, it refers to increases in owner’s
equity resulting from selling goods, rendering
services or performing other business activities.
Common examples include:

23. 1. Service Revenue/Professional Fees/Income from
Fees – revenue earned from selling services
2. Rent Income – revenue earned from renting out
commercial spaces ( like apartments,
condominiums, market stalls, office spaces) to
third parties
3. Interest Income – revenue earned from lending
money

24. 4. Commission Income – revenue earned by real estate
brokers, insurance agencies, travel agencies, etc.
5. Sales – principal revenue of both merchandising and
manufacturing concerns selling goods to customers
 Sales Returns and Allowances – is a contra-revenue
account that refers to the merchandise returned at
selling price by customers due to defects, inferior
quality or not in accord with customer’s
specifications.

25.  Sales Discount – is a contra-revenue account that
refers to the reduction in the amount to be paid
by a customer as a result of early payment of an
invoice.
Both sales returns and allowances and sales
discounts are deducted from Gross Sales to arrive
at the Net Sales.

26. EXPENSES
Expenses are decreases in economic benefits
during the accounting period in the form of
outflows or depletions of assets or incidences of
liabilities that result in decreases in equity other
than those relating to distributions to equity
participants. These are decreases in owner’s equity
resulting from the costs of goods and services used
up in the course of earning revenues. Common
examples include:

27. 1. Advertising Expense – refers to cost of
publications on newspapers, radio, television,
calling cards, billboards and other costs of
promoting the business
2. Communications Expense – refers to cost of all
means of communications used during the
period like telephone, telegraph services and
postage

28. 3. Delivery Expense – also known as Freight-Out or
Transportation Out. It represents the cost of
gasoline, oil and other related expenses in
transporting goods to customers
4. Depreciation Expense – refers to the portion of
the total cost of fixed assets allocated to current
operations

29. 5. Insurance Expense – refers to insurance
premiums paid or payable to an insurance
company. In an insurance contract, one party, the
insurance company, undertakes to guarantee the
business against loss by a specified event or peril
6. Interest Expense – refers to the cost of borrowing
funds used by the business. Also known as Finance
Cost

30. 7. Rent Expense – refers to charges on the right to
occupy shop or office space or enjoy the use of
other properties or assets
8. Repairs & Maintenance Expense – refers to the
cost of repairing and servicing certain assets like
buildings and office equipment
9. Representation Expense – refers to the cost of
entertaining customers and prospective clients and
others(e.g., meal allowance)

31. 10. Salary Expense – refers to the compensation or
remuneration in whatever form given to employees
for the services they render to the firm
11. Supplies Expense – refers to the cost of
ballpens, erasers, stationery and other supplies
used or consumed by the enterprise
12. Taxes and Licenses – refers to business taxes,
licenses and other fees due to the government

32. 13. Utilities Expense – refers to the cost of
electricity and water consumed during the current
accounting period
14. Purchases – refers to the merchandise acquired
or bought during the period, which is intended to
be sold in the ordinary course of the business

33.  Purchases Returns & Allowances – is a contra-
expense account, which refers to the reduction
of the amount the company should pay for
merchandise bought as a result of defect, inferior
quality or wrong specifications. It’s nature is
similar to that of Sales Returns & Allowances.
The difference lies only in the perspective.

34.  Purchase Discounts – is a contra-expense
account that refers to the discount taken by the
company for early payment
Both Purchases Returns & Allowances and Purchase
Discounts have an effect of reducing Purchases.

35. 15. Freight-In or Transportation In – refers to the
cost of transporting items bought for resale from its
point of origin to the point of destination. Actually,
this is a delivery expense but shouldered by the
buyer

36. EFFECTS OF TRANSACTION ON THE ELEMENTS OF ACCOUNTING
All business transactions can be stated in terms of
their effect on the elements of accounting in the
accounting equation. There are nine (9) possible
two-fold effects on these elements.

37. 1. Increase in Assets = Increase in Capital
2. Increase in Assets = Increase in Liabilities
3. Increase in Assets = Decrease in Other Forms of
Assets
4. Decrease in Assets = Decrease in Liabilities
5. Decrease in Assets = Decrease in Capital
6. Decrease in Liabilities = Increase in Capital

38. 7. Decrease in Liabilities = Increase in Other Forms
of Liabilities
8. Decrease in Capital = Increase in Liabilities
9. Decrease in Capital = Increase in Other Forms of
Capital