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

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.

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. 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.
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.
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.

3. 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.

4. 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.

5. 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.

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.
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.
 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.

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

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.

2. Notes Payable – with promissory note as evidence of indebtedness

3. Utilities Payable – obligations to utility companies like electric companies, water

companies

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

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.

B. NON-CURRENT LIABILITIES - 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
 2. Mortgage Payable – a long term obligation to a bank or other financial institutions secured
by real properties of the business

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

1. (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
2. (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

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:

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

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.
 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.

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:
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

3. Depreciation Expense – refers to the portion of the total cost of fixed assets allocated to
current operations

4. 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

5. Interest Expense – refers to the cost of borrowing funds used by the business. Also known
as Finance Cost

6. Rent Expense – refers to charges on the right to occupy shop or office space or enjoy the
use of other properties or assets

7. Repairs & Maintenance Expense – refers to the cost of repairing and servicing certain
assets like buildings and office equipment

8. Salary Expense – refers to the compensation or remuneration in whatever form given to

employees for the services they render to the firm

9. Supplies Expense – refers to the cost of ballpens, erasers, stationery and other supplies
used or consumed by the enterprise

10. Taxes and Licenses – refers to business taxes, licenses and other fees due to the
government

11. Utilities Expense – refers to the cost of electricity and water consumed during the current
accounting period

12. Purchases – refers to the merchandise acquired or bought during the period, which is
intended to be sold in the ordinary course of the business
 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.
 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.