Types-of-major-accounts.pptx

TYPES OF MAJOR ACCOUNTS

ASSETS

BALANCE SHEET

denote things of value that are owned and used by the enterprise in its operations.

CURRENT ASSETS refer to all assets that are expected to be realized, sold or consumed within the enterprise normal operating cycle. Operating cycle is the interval of time from the date of acquisition of merchandise inventory; sell the inventory to customers and the ultimate collection of cash from the sale. CASH – the account title to describe money, either in paper or in coins and money substitutes like check, postal money orders. When cash is within the premise of the business, the accounts title is Cash on Hand and Cash in Bank if deposited in bank. PETTY CASH FUND – the account title for money placed and set aside for petty or small expenses. NOTES RECEIVABLE – a promissory note that is received by the business from the customer arising from rendering of services, sale of merchandise. ACCOUNTS RECEIVABLE – the account title for amounts collectible arising services rendered to a customers or client on credit or sale of goods to customers on accounts. This constitutes an oral or verbal promise to pay by a customer or client. ESTIMATED UNCOLLECTIBLE ACCOUNTS – this is an assets offset or a contra-assets accounts. It provides for possible losses from uncollected accounts. Although this is not actually an asset, it is classified as such because it is shown as a deduction from the Accounts Receivable which is a Current Asset Account.

ACCRUED INCOME- the amount of income earned but not yet collected ADVANCES TO EMPLOYEES – the account title for amounts collectible from employees for allowing them to make cash advances which are deductible against their salaries or wages. INVENTORIES – These are assets which are: held for sale in the ordinary course of the business; in the process of production for such sale. In the for materials or supplies to be consumed in the production process or in the rendering of services PREPAID EXPENSES – account title for expenses that are paid in advance but are not yet incurred or have not yet expired such as Prepaid Rental, Prepaid Insurance, Prepaid Interest, Prepaid Advertising. UNUSED SUPPLIES – account title for cost of stationery and other supplies purchased for use but are left on hand and still unused. The account title should be specified as to Unused Office Supplies if intended for the office, Unused Shop Supplies if intended for the shop.

NON-CURRENT ASSETS

all other assets not classified as current should be classified as non- current assets LAND – account title for the site where the building FURNITURE and FIXTURE – includes chairs, used as office or store is constructed tables, counters, display cases and the like. If these BUILDING – account title for a finished construction are used in the office, the account title is Office owned by the business where operation and Furniture & Fixtures and if these are used in store, transactions took place the account title is Store Furniture & Fixtures EQUIPMENT – includes calculator, typewriters, ACCUMULATED DEPRRECIATION - this is an adding machines, computers, steel filing cabinets asset offset or contra-asset account. Thiscalled a and the like. If these are used in the office, the Valuation Account which is shown as a deduction account title is Office Equipment and if used in the from property and equipment. The assets that are store, Store Equipment. Trucks, jeep, van, claAssified as Property & Equipment or Fixed automobiles and other kinds of motor vehicles are \Assets are called Depreciable Assets and are used exclusively for delivering goods; the account subject to depreciation except land title Delivery equipment.

TYPES OF MAJOR ACCOUNTS BALANCE SHEET

LIABILITIES

denote financial obligations of the business to its creditors. It represents the claim of the creditors over the assets of the enterprise.

CURRENT LIABILITIES refer to financial obligation of the enterprise which are: expected to be settled in the normal course of the operating cycle; due to be settled within one year from the balance sheet date ACCOUNTS PAYABLE – an account title for financial obligation of the enterprise that constitute an oral or verbal promise to pay NOTES PAYABLE (short term) – same accounts payable in nature but only the obligation is evidenced by a promissory note. The enterprise is the one who issued the note. ACCRUED EXPENSES - these are expenses incurred by the enterprise but are not yet paid. PRE-COLLECTED OR UNEARNED INCOME – this is an account title for an income collected or received in advance and is not yet considered as earned.

NON-CURRENT ASSETS refer to financial long term obligations of the enterprise which are due and payable for more than one year. This usually occurs in a corporate form of business organization. NOTES PAYABLE (long term) – same nature with that of Notes Payable (short-term) but only, this requires payment for more than a year. MORTGAGE PAYABLE – a financial obligation of the enterprise which requires a fixed or tangible property to be pledged as collateral to ensure payment.

OWNER’S EQUITY

the residual interest in the assets of the enterprise after deducting all its liabilities. It is expressed in the equation as Assets less Liabilities equals Owners Equity or Capital.

It increase when there is Profit or additional contributions by the owner and decreased when there is Loss or withdrawal by the owner. The amount of money or value of property put by the proprietor into the business to start with the operation which is referred to as “Initial Investment” or “Initial Capital”. The terms used in reporting the equity of an enterprise depending on what form of enterprise: • Owner’s Equity for a proprietorship • Partner’s Equity for a partnership • Shareholders Equity for a corporation. CAPITAL – this is the center of the owner’s concern because this may increase or decrease at any time as a result of business operation. - in the normal course of operation, Owners Equity will be increased by income and decrease by expenses. The owner’s capital investment is indicated by the use of the owner’s name with a word capital written after the name which is separated by a comma. Thus, if the owner’s is Robert Jaworski, the title for his capital account is, EX: ROBERT JAWORSKI, Capital WITHDRAWAL - the owner’s withdrawal is likewise indicated by the use of the owner’s name with the word Drawing or Personal written after the name which is separated by a comma. Thus, if the owner is Robert Jaworski who made withdrawal, the title for his drawing is, ROBERT JAWORSKI, Personal or ROBERT JAWORSKI, Drawing REVENUE & EXPENSES - this is a temporary accounts created at the end of the accounting period where Revenue and Expenses are temporary closed to this account.

TYPES OF MAJOR ACCOUNTS INCOME STATEMENT

REVENUE

- gross inflow of economic benefits during the period arising in the course of ordinary activities of an enterprise. - the amount received by the business as a result of selling something or rendering a service. SALES – in general, this represents revenue derived from the sale of merchandise SERVICE INCOME – in general, this is the account title used for all types of income derived from rendering of services. Sometimes the account title used is Service Revenue. Other specific income titles used are: PROFESSIONAL INCOME – the account title generally used by professionals for income earned from the practice of their profession or may be specified as Accountin or Auditing Fees Income for Accountants, Legal Fees Income for Lawyers, Dental Fees Income for Dentists, and Medical Fees Income for Doctors. RENTAL INCOME – income earned on buildings, space or other properties owned and rented out by the business as the main line of its activities. INTEREST INCOME – income received by the business arising from an amount of money borrowed by a customer and is usually covered by a promissory note. This is typical in lending institution

EXPENSES -

gross outflow of economic benefits during the period arising in the course of ordinary activities of an enterprise the amount consumed by the business to operate

COST OF SALE OR COST OF GOODS SOLD – cost to produce and sell the goods INTEREST EXPENSE – an expense incurred from borrowed money. This is separately shown as a deduction from Operating Income before arriving as Net Income RENT EXPENSE – the amount paid or incurred for use of property, usually premises. REPAIRS AND MAINTENANCE – expenses incurred in repairing or servicing the buildings, machineries, vehicles, equipment, etc., which are owned by the business STATIONERY AND OFFICE SUPPLIES EXPENSE - the incurred in repairing or servicing the buildings, machineries, vehicles, equipment, etc., which are owned by the business SALARIES EXPENSE – for compensation given to employees of a business. It may be specified as Office Salaries, Salesmen’s Salaries, etc. UNCOLLECTIBLE ACCOUNTS – for the anticipated loss that the business may incur arising from uncollectible accounts. DEPRECIATION EXPENSE – for the allocated portion of the cost of property and equipment or fixed assets. TAXES and LICENSES – for the amount paid for business permits, licenses and other government dues except the Income Tax paid which is not allowable by law as a deduction INSURANCE EXPENSE – account title for the expired portion of the insurance premium paid. UTILITIES EXPENSE – the account title for telephone, light and water bills. Also included is gasoline, lubricants and oil.