Type of Major Accounts (Elements of Financial Statements)

Define Assets, Liabilities, Owner’s Equity, Income and Expense

 Assets are the resources owned and controlled by the firm.
 Liabilities are obligations of the firm arising from past events which are to be settled in
the future.
 Equity or Owner’s Equity are the owner’s claims in the business. It is the residual
interest in the assets of the enterprise after deducting all its liabilities.
 Income is the increase in economic benefits during the accounting period in the form of
inflows of cash or other assets or decreases of liabilities that result in increase in equity.
Income includes revenue and gains.
 Expenses are decreases in economic benefits during the accounting period in the form of
outflows of assets or incidences of liabilities that result in decreases in equity.

The difference between Current vs. Non-Current Assets, and Tangible vs. Intangible
Assets.

 Current Assets are assets that can be realized (collected, sold, used up) one year after
year-end date. Examples include
- Cash, - Merchandise Inventory,
- Accounts Receivable, - Prepaid Expense, etc.
 Non-current Assets are assets that cannot be realized (collected, sold, used up) one year
after year-end date. Examples include
- Property,
- Plant and Equipment (equipment, furniture, building, land),
- long term investments, etc.
 Tangible Assets are physical assets such as
- cash, - furniture and fixtures.
- supplies, and
• Intangible Assets are non-physical assets such as patents and trademarks.

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 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
• Intangible Assets are assets without a physical substance. Examples include franchise
and copyright.
Liabilities - are the debts and obligations of the company to another entity.

The differences of Current vs. Non-Current Liabilities.

Current Liabilities. - Liabilities that fall due (paid, recognized as revenue) within one year after
year-end date. Examples include Accounts Payable,
- Utilities Payable and
- Unearned Income.
Non-Current Liabilities - Are liabilities that do not fall due (paid, recognized as revenue)
within one year after year-end date. Examples include
- Notes Payable, - Mortgage Payable, etc.
- Loans Payable,

Account Titles used for Liability Accounts.

Current Liabilities
• Accounts Payable are amounts due, or payable to, suppliers for goods purchased on
account or 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
• Loans Payable • Deferred Tax Liabilities
• Mortgage Payable • Other long-term liabilities
• Bonds Payable

Owner’s Equity - Is the residual interest of the owner from the business.

Account Titles used for Equity Account.

• 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.
Sole Proprietorship Partnership Corporation

Owner’s Equity Partner’s Equity (There are as Share Capital

many capital accounts based
on the number of partners)

Owner’s Drawings Partners’ Drawings Share Premium

Retained Earnings

Income - Income is the Increase in resources resulting from performance of service or selling of
goods.
Service revenue - For service entities, Sales for merchandising and manufacturing companies.

The account title of revenue is not limited to use, we can use professional fees (earned) etc.
depending on the company what to use, as long it signifies revenue.

Service Companies Merchandising and Manufacturing

Service Revenue/Income Sales Revenue

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

Salaries Representation

Rent Transportation

Utilities Communication
 Depreciation … and many others

Repairs and Maintenance

Gas and Oil

Chart of Accounts.
• A chart of accounts is a listing of the accounts used by companies in their financial
records.
• The chart of accounts is the foundation of the financial statements.