1five Major Accounts

FIVE MAJOR
ACCOUNTS AND
CHART OF
ACCOUNTS
Fundamentals of Accountancy, Business and
Management 1
Review:-
Wk. 1 INTRODUCTION TO ACCOUNTING

(Nature, Origin and Users of Accounting)
ACCOUNTING PRINCIPLES AND

Wk. 2- 3 ACCOUNTING EQUATION
Review:-
assets Resources owned and controlled by the

company
liabilities Debt owned by the company
Owner’s
equity Residual interest of the owners
The Account
The basic summary device of
accounting is the account. A separate account is
maintained for each element that appears in the balance
sheet ( assets, liabilities and equity) and in the income
statement (income and expenses). Thus, an account may
be defined as a detailed record of the increases,
decreases and balance of each element that appears in
an entity’s financial statements. The simplest form of the
account is known as the “T” account because of its
similar to the letter “T”.
The Account has three parts as shown below:
Account Title
Left side Right side
or Debit or Credit
side side
The Five Major Accounts
Assets
Liabilities
Capital
Income
Expenses
Assets
Assets are resources or things of value that are
owned and controlled by the firm.
Assets have different types

1. Current Assets
2. Non-current Assets
3. Tangible Assets
4. Intangible Assets
Example of Assets
Accounts Long term

Cash Receivabl Investments
e
Current Assets are assets that can be

Non- current assets are
realized (collected, sold, used up)one year
after year-end date. Or which assets
assets that cannot be
company expected to convert to cash or Inventori Intangibl realized (collected,
use up within one year or its operating es e Assets sold, used up) one year
cycle. after year-end date. or
other assets not
classified a current
assets.
Notes Prepaid Property,Plant

Receivable Expenses and
Equipment(PPES
)
Current Assets
Current Assets are which assets company expected to convert to cash or use up within one
year or its operating cycle.
Sup
Cash
Accounts
plies Accrued
Receivable
Income
Notes Invent
Receivable ories
s
Prepaid Accounts
Receivabl
Expenses e
Current assets:
*cash – is money on hand, or in banks, and other items considered as

medium of exchange in business transactions.
*Accounts receivable – are amounts due from customers

arising from credit sales or credit services.
*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
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 Terms investments – are the investments made by the
company that are intended to be sold immediately.
Non-current Assets
Non-current assets are assets that cannot be realized (collected, sold, used up) one year
after year-end date.
Proper
ty, Long
Plant term Intang
and Invest ible
Equip ments Assets
ment
Property , Plant and Equipment
This assets are long useful lives that a company is
currently using in operating a business or long-lived
assets which have been acquired for use in operations.
Buildi Lan
ng
d
Equip Furnit
ment ure
Long –Term investment
It is n generally investment in stocks and bond of other companies that are normally held
for many years or investments made by the company for long-term purposes.
Stock
Investment
Investm in real estate
ents
Tangible Assets
Are physical assets such as cash, supplies, and
furniture and fixtures.
Cash Supplies
Furniture
and
Fixtures
Intangible Assets
Companies Long-lived assets that do not have
physical substance.
Good
Patents
will
Trade Copy
Mark Right
Liabilities
Liabilities are debts and
obligations of the company to
another entity.
Liabilities have different types

1. Current Liabilities
2. Non–current Liabilities
Example of Liabilities
Notes
Accounts
Payable
Payable
Unearned
Service
Bonds Revenue
Payable
Salaries &
Interest Wages
Payable Payable
Current Liabilities
Current Liabilities are those which the company is to pay within the coming year or its
operating cycle or that are fall due (paid, recognized as revenue) within one year after
year-end date.
Salaries &
Accounts Wages
Payable Payable
Unearned
Utilities Income
payable
Current liabilities:
*Accounts payable – are amounts due or payable to, suppliers
for goods purchased on account of for services received on account.
.
*notes payable – are amounts due to third parties supported by

promissory notes.
*Accrued Expenses – are expenses that are incurred but not yet
paid (examples: salaries payable, taxes payable)..
*unearned income – is cash collected in advance; the

liability is the services to be performed or goods to be delivered in the
future.
Non–current Liabilities
Are those which company expects to pay after one year or that do not fall due
(paid, recognized as revenue) within one year after year-end date.
Mortgag Loans
e Payable Payable
Owner’s Equity
Is the residual interest of the owner from the
business. It can be derived by deducting
liabilities from assets.
Capital – is the value of cash and other

assets invested in the business by the owner
of the business.
Drawing – is an account debited for assets
withdrawn by the owner for personal use
from the business
.
Revenue/ Income
The gross increase in owner`s equity
resulting from business activities
enlarged into for the purpose of
earning income.
Income is the increase in resources

resulting from performance of service
or selling of goods..
Service
Revenue
Sales
Revenue
Expenses
Expense are the cost of assets
consumed or service used in the
process of earning revenue.
*Expense is the decrease in resources
resulting from the operations of
business
*Expenses decreases Equity in the
accounting equation.
Rent Salaries &
Expenses Wages
Expenses
Utilities Interest
Expenses Expenses
Depreciation
Expenses
The Chart of Accounts
➢ The chart of accounts is a listing of the accounts
used by companies in their financial records.
➢ The chart of accounts helps to identify where the

money is coming from and where it is going.
➢ The chart of accounts is the foundation of

financial statements.
Steps in preparation of a basic charts of accounts
1. Create two columns.
2. Prepare the asset first, then the liabilities, then
equity,then revenue and expenses.
3. List all assets, liabilities, equity, revenue and expenses
account in the first column.
4. On the second column, choose an account code
(discretion of the company).
5. On the third column, write the description for each
account on when to use it.
Sample of a charts of accounts
ACCOUNT ACCOUN DESCRIPTION

T CODE
*may
vary
Assets
Cash 1000 Use for actual cash transactions
Accounts Receivable 1200 Use for customers who will pay in the future
Inventory 1300 Use for items held for sale
Prepaid Expenses 1400 Use for expenses paid in advance
Supplies 1500 Use for items to be used in the office
Office Equipment 1600 Use for equipment that are used in the office
Store Equipment 1700 Use for equipment that are used in the store
Land 1800 Use for land used in operations
Sample of a charts of accounts
ACCOUNT ACCOUNT DESCRIPTION

CODE
*may vary
Liabilities
Accounts Payable 2000 Use for the debts of the company
Notes Payable 2100 Use for promissory notes issued by the company
Salaries Payable 2200 Use for salaries to be paid in the future
Capital
Owner’s, Capital 3000
Owner’s, 4000
Withdrawal
Service Revenue 5000 Use for earnings
Salaries Expense 6000 Use for salaries incurred, regardless of payment
Match Column A with column B.
Column A Column B
 1. It is obligations of the company payable in  A. Assets
money, goods or services.
 B. Liabilities
 2. These are non-current tangible assets.
 C. Owner’s Equity
 3. These assets are identifiable, non-
monetary assets without physical substance.  D. Cash
 4. It is the claim of the owner also known as  E. Accounts Receivable
the capital.
 F. Notes Receivable
 5. It is the most liquid asset and is the
medium of exchange for business  G. Rent Expense
transactions.  H. Intangible Assets
 6. It is an expense for leased office space,  I. Property, Plant and
equipment or assets rented from others.
Equipment
 7. Examples of this are cash, account
receivable and prepaid expenses.
 8. It is written promise from the customer to
pay his receivables on a certain future date.

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FIVE MAJOR

Wk. 1 INTRODUCTION TO ACCOUNTING

ACCOUNTING PRINCIPLES AND

assets Resources owned and controlled by the

liabilities Debt owned by the company

Assets have different types

Accounts Long term

Current Assets are assets that can be

Notes Prepaid Property,Plant

*cash – is money on hand, or in banks, and other items considered as

*Accounts receivable – are amounts due from customers

*Notes receivable – are amounts due from clients supported by

*inventories – are assets held for resale.

*prepaid expenses – are expenses paid in advance. They are assets

*Accrued income – is revenue earned but not yet collected.

Liabilities have different types

*notes payable – are amounts due to third parties supported by

*unearned income – is cash collected in advance; the

Capital – is the value of cash and other

Income is the increase in resources

➢ The chart of accounts helps to identify where the

➢ The chart of accounts is the foundation of

ACCOUNT ACCOUN DESCRIPTION

ACCOUNT ACCOUNT DESCRIPTION

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