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Major Accounts

The document outlines the five major accounts in accounting: Assets, Liabilities, Equity, Revenue, and Expenses, providing definitions and examples for each. It further classifies assets and liabilities into current and non-current categories, along with tangible and intangible distinctions. Additionally, it explains the process of preparing a chart of accounts, including steps and a sample account listing.

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3 views4 pages

Major Accounts

The document outlines the five major accounts in accounting: Assets, Liabilities, Equity, Revenue, and Expenses, providing definitions and examples for each. It further classifies assets and liabilities into current and non-current categories, along with tangible and intangible distinctions. Additionally, it explains the process of preparing a chart of accounts, including steps and a sample account listing.

Uploaded by

cyrillejoice
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© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Let us first know the definitions of the five (5) major accounts:

1. Assets are the resources owned and controlled by the firm or the company.
Examples of these are cash, computer systems and patents.
2. Liabilities are the obligations of the company arising from past events which
are to be settled in the future. These represent what the company owes
to other people, organization, and financial institutions.
Examples of these are mortgages, vehicles and loans.
3. Equity or Owner’s Equity is the owner’s claims in the business. It is part of
the total assets that the owners of the company fully own.
An example of this is capital.
4. Revenue or Income is the money that the company earns from its regular
sales of products or services. This is earned by the company through sales
of products or services.
Examples of this are sale of building materials and accounting services
by a CPA firm.
5. Expenses are the money that the company spends to produce the goods or
services it sells.
Examples of these are rent expense, supplies expense and salaries
expense.
Assets

There are the two (2) classifications of assets:

1. Current Assets
2. Non- Current Assets

Difference between Current vs. Non-Current Assets


& Tangible vs. Intangible Assets

• Current Assets are assets that can be collected, sold, and even used up to one
year after year-end date.

Examples of Current Assets are:

Cash is money on hand, or in banks, and other items considered as a


medium of exchange in business transactions.
Accounts Receivable are amounts due from customers arising from debts.
Notes Receivable are amounts due from clients supported by a written
note or promise.
Inventories are assets held for resale in the course of the business.
Supplies are items purchased by an enterprise that is unused as of the
reporting date.
Prepaid Expenses are advance payment for expenses.
Accrued Income is an income or revenue earned by the firm but not yet
collected.
Short-term Investments are the investments made by the company that is
intended to be sold immediately.
• Non-current Assets are assets that cannot be collected, sold, and even used
up to one year after year-end date.

Examples of Non-Current Assets

Property, Plant, and Equipment are long-lived assets that have been

acquired for use in operations.

Long term Investments are the investments of the firm made for long term

purposes.

• Tangible Assets are physical assets in the form of cash, furniture and fixtures,
and supplies.

• Intangible Assets are non-physical assets in the form of trademarks and


patterns.

Liabilities

Current vs. Non-Current Liabilities

Current Liabilities are those that reach its due date for payment (paid, recognized
as revenue) within one year after year-end date.
Examples of Current Liabilities
Accounts Payable are amounts due or debts to the suppliers for goods
purchased or for services received on account.
Notes Payable are amounts due to third parties supported by a written note
or promise.
Accrued Expenses are treated as liabilities since these are the expenses
that are incurred but not yet paid (e.g. salaries payable,
taxes payable).
Unearned Income is cash or payment collected in advance.

Non-current Liabilities are those that do not reach its due date for payment, (paid,
recognized as revenue) within one year after year-end date.

Examples of Non Current Liabilities

Loans Payable is a contract wherein the owner of the property gives the
right to use it to another party in exchange for an interest
payment and gives back the property at the end of their
contract. It is documented by promissory note. And in the
case there is still a portion which is unpaid as of the date
of a company's balance sheet, the remaining balance on
the loan is called a loan payable.

Mortgage Payable is the liability of a property owner to pay a loan that


is secured by property and from the borrower’s point of
view. The mortgage is considered as long-term liability.
Some part of the debt that is payable within the next
12 months is classified as a short-term liability. The
remaining unpaid principal will be the total amount
due of the loan.

Just like in assets, there is also a classification when it comes to a


liability account.
Owner's Equity

There are two (2) important elements that comprised the equity:

• Capital is the worth of cash and other assets invested in the business.
• Drawing is an account debited for assets withdrawn by the owner for
personal use from the business.

Income - is the increase in resources resulting from the performance of service or


selling of goods.

Examples of income accounts are:


• Service revenue for service entities
• Sales for merchandising and manufacturing companies
• Interest Income

Expense -is the decrease in resources resulting from the operations of the
business.

Examples of expense accounts are:


• Salaries expense
• Interest expense
• Utilities expense

After the discussion on the Five Major Accounts, let us now proceed on the chart
of accounts starting from its definition.

A chart of accounts is a listing of all accounts used by companies in their


financial records.
Here are the five steps in preparing a basic chart of accounts:

1. Make two columns.


2. Prepare the assets, liabilities, equity, revenue, and expenses,
respectively.
3. List all assets, liabilities, equity, revenue, and expenses account in
the first column.
4. In the second column, choose an account code (this may vary
depending on the company).
5. In the third column, write the description of each account title.
Chart of Accounts:

Account Code Account Title


Assets
101 Cash
102 Accounts Receivable
103 Inventory
104 Prepaid Expense
105 Supplies
106 Equipment
107 Building
108 Land
Liabilities
201 Accounts Payable
202 Notes Payable
Capital
301 Owner’s Capital
302 Owner’s Drawing
401 Service Revenue
501 Salaries Expense
502 Rent Expense
503 Utilities Expense

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