LESSON 4: TYPES OF MAJOR ACCOUNT: Assets, Liabilities, Owner’s Equity, Income and Expense

1. ASSETS are the resources owned and controlled by the firm.

 Current Assets are assets that can be realized (collected, sold, used up) one year after year-
end date. Examples include Cash, Accounts Receivable, Merchandise Inventory, Prepaid
Expense, etc.
GATEWAY INTEGRATED SCHOOL  Non-current Assets are assets that cannot be realized (collected, sold, used up) one year after
OF SCIENCE AND TECHNOLOGY GEN. TRIAS CAMPUS year-end date. Examples include Property, Plant and Equipment (equipment, furniture,
Sitio Tinungan Brgy. Manggahan Gen. Trias City Cavite building, land), long term investments, etc.
 Tangible Assets are physical assets such as cash, supplies, and furniture and fixtures.
 Intangible Assets are non-physical assets such as patents and trademarks
Senior High School Department Account Titles Used for Asset Accounts
Current Assets
Module 4  Cash is money on hand, or in banks, and other items considered as medium of exchange
in business transactions.
FUNDAMENTALS OF ACCOUNTANCY,  Accounts Receivable are amounts due from customers arising from credit sales or credit
services.
BUSINESS, AND MANAGEMENT 1  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.
Prepared by:  Intangible Assets are assets without a physical substance. Examples include franchise and
copyright.
MS. SHIRLY S. CAÑETE
Subject Teacher
2. LIABILITIES are obligations of the firm arising from past events which are to be settled in the
__________________________________________________________ future.
Name of Student 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.
Grade Level and Section Examples include Accounts Payable, Utilities Payable and Unearned Income.

Date: ________________________

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 Non-current Assets are liabilities that do not fall due (paid, recognized as revenue) within one CHART OF ACCOUNTS
year after year-end date. Examples include Notes Payable, Loans Payable, Mortgage Payable, etc.
A chart of accounts is a listing of the accounts used by companies in their financial records.
Account Titles used for Liability Accounts
 The chart of accounts helps to identify where the money is coming from and where it is
Current Liabilities going.
 Accounts Payable are amounts due, or payable to, suppliers for goods purchased on  The chart of accounts is the foundation of the financial statements.
account or for services received on account.
The following are the steps in the preparation of a basic chart of accounts:
 Notes Payable are amounts due to third parties supported by promissory notes.
1. Create two columns.
 Accrued Expenses are expenses that are incurred but not yet paid (examples: salaries
2. Prepare the assets first, then liabilities, then equity, then revenue and expenses.
payable, taxes payable)
3. List all assets, liabilities, equity, revenue and expenses account in the first column.
 Unearned Income is cash collected in advance; the liability is the services to be performed
or goods to be delivered in the future. 4. On the second column, choose an account code (discretion of the company).
Non-Current Liabilities 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:
 Loans Payable
 Mortgage Payable Assets
Account Code
Account Description
3. OWNER’S EQUITY are the owner’s claims in the business. It is the residual interest in the assets *may vary
of the enterprise after deducting all its liabilities. Cash 1000 Use for actual cash transactions
Account Titles used for Equity Account Accounts Receivable 1200 Use for customers who will pay in the future
 Capital is the value of cash and other assets invested in the business by the owner of the Inventory 1300 Use for items held for sale
business. Prepaid Expenses 1400 Use for expenses paid in advance
Supplies 1500 Use for items to be used in the future
 Drawing is an account debited for assets withdrawn by the owner for personal use from the
Office Equipment 1600 Use for equipment that are used in the office
business.
Store Equipment 1700 Use for equipment that are used in the store
Land 1800 Use for land used in operations
4. INCOME is the increase in economic benefits during the accounting period in the form of inflows
Liabilities
of cash or other assets or decreases of liabilities that result in increase in equity. Income includes
Accounts Payable 2000 Use for the debts of the company
revenue and gains.
Notes Payable 2100 Use for promissory notes issued by the
Income is the Increase in resources resulting from performance of service or selling of goods. company
Income increases equity in the accounting equation. Salaries Payable 2200 Use for salaries to be paid in the future
Examples of Income Accounts: Service revenue for service entities, Sales for Capital
merchandising and manufacturing companies Owner’s, Capital 3000
Owner’s, Withdrawal 4000
5. EXPENSE - are decreases in economic benefits during the accounting period in the form of Service Revenue 5000 Use for earnings
outflows of assets or incidences of liabilities that result in decreases in equity. Use for salaries incurred, regardless of
Salaries Expense 6000
Expense is the decrease in resources resulting from the operations of business. payment
Expenses decreases Equity in the accounting equation. Use for electricity and water expenses
Utilities Expense 6100
Examples of Expense Accounts: Salaries Expense, Interest Expense, Utilities Expense incurred

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ACTIVITY 4 ASSESSMENT 4
A. Answer the questions. A. Matching Type: Choose the answer in the selection box that satisfy the statement below.
1. Explain the differences between assets and expenses.
Assets Accounts Receivable Intangible Assets
2. Explain the difference between liabilities and revenues.
Liabilities Notes Receivable Property, Plant and Equipment
3. Why is it essential for a business to earn net income? Owner’s Equity Rent Expense Cash
Prepaid Expense
B. Classify the following items below. Put a check on their corresponding boxes.
____________ 1. It is the obligations of the company payable in money, goods or services.
Account Title Current Non-Current Tangible Intangible ____________ 2. These are non-current tangible assets.
Asset Asset ____________ 3. These assets are identifiable, non-monetary assets without physical substance.
1. Account Receivable ____________ 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.
2. Cash ____________ 6. It is an expense for leased office space, equipment or assets rented from others.
3. Inventories ____________ 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
4. Office Supplies date.
5. Prepaid Insurance
B. Identify if the account is an asset, liability, equity, income or expense. Put a check on their
6. Computer Equipment corresponding box.
7. Notes Receivable Account Asset Liabilities Equity Income Expense
8. Accrued Income 1. Accounts Receivable
2. Accumulated Depreciation
9. Prepaid Rent
3. Advertising Expense
10. Building 4. Bonds Payable
11. Furniture & Fixtures 5. Building
12. Copyrights 6. Cash
7. De Jesus, Capital
13. Delivery Truck
8. De Jesus, Drawing
14. Store Supplies 9. Delivery Truck
15. Land 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

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