TABACO NATIONAL HIGH SCHOOL

Panal, Tabaco City

Fundamentals of Accountancy, Business and Management 1

(Home-based Lessons-March 6-10, 2023)
SY 2022-2023
(11 ABM A – E)

THE FIVE MAJOR ACCOUNTS

Objective: Discuss the five major accounts.

Lesson:
Types of major accounts: 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.

Assets
• Current Assets are assets that can be realized (collected, sold, used up) one year after year-end
date.
Examples include Cash, Accounts Receivable, Merchandise Inventory, 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, supplies, and furniture and fixtures.
• Intangible Assets are non-physical assets such as patents and trademarks

a. 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

b. 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

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 copyright.

Liabilities
Liabilities are the debts and obligations of the company to another entity.
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, Loans Payable, Mortgage Payable, etc.

a. 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.

b. Non-Current Liabilities
Loans Payable – is a liability account listing the amount of any loan debt you’ve taken out and haven’t
repaid.
Mortgage Payable – is the liability of a property owner to pay a loan that is secured by property.

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.
Income is the Increase in resources resulting from performance of service or selling of goods. Income
increases equity. Examples: Service revenue for service entities, Sales for merchandising and
manufacturing companies.
Expense is the decrease in resources resulting from the operations of business. Expenses decreases
Equity in the accounting equation. Examples: Salaries Expense, Interest Expense, Utilities Expense.

Practice Exercise

A. Matching Type
Assets Accounts Receivable Intangible Assets
Liabilities Notes Receivable Property, Plant and Equipment
Owner’s Equity Rent Expense
Cash Prepaid Expense

____________1. It is the obligations of the company payable in money, goods or services.

____________ 2. These are non-current tangible assets.
____________ 3. These assets are identifiable, non-monetary assets without physical substance.
____________ 4. It is the claim of the owner also known as the capital.
____________ 5. It is the most liquid asset and is the medium of exchange for business transactions.
____________ 6. It is an expense for leased office space, equipment or assets rented from others.
____________ 7. Examples of this are cash, account receivable and prepaid expenses.
____________ 8. It is a written promise from the customer to pay his receivables on a certain future
date.

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Evaluation

Identify if the account is an asset, liability, equity, income or expense account.

Account Assets Liabilities Owner’s Income Expense Balance
Equity
1 Accounts
Receivable
2 Accumulated
Depreciation
3 Advertising
Expense
4 Bonds Payable

5 Building
6 Cash
7 De Jesus,
Capital
8 De Jesus,
Drawing
9 Delivery Truck
10 Interest Payable
11 Inventories
12 Land
13 Mortgage Loans
14 Notes Payable
15 Notes
Receivable
16 Office Supplies
17 Prepaid Expense
18 Rent Expense
19 Salaries
Expense
20 Salaries Payable
21 Service Fees
Income
22 Supplies
Expense
23 Marketable
Securities
24 Unearned
Income
25 Utilities Expense

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 CHART OF ACCOUNTS
Objective: Prepare a Chart of Accounts.

Lesson:

• A 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 the financial statements.

The following are the steps in the preparation of a basic chart of accounts:

1. Create two columns.

2. Prepare the assets first, then 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.

ASSETS
Account Code
Account *May vary Description
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 future
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

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 Withdrawal 4000
Service Revenue 5000 Use for earnings
Salaries Expense 6000 Use for salaries incurred, regardless of
payment
Utilities Expense 6100 Use for electricity and water expenses
incurred

Practice Exercise

A. Choose the correct answer.

1. 1. The chart of accounts is a listing of the accounts presently having balances in the general
2. ledger.
3. a. True b. False
4.
5. 2. Some accounting software will classify some accounts as "income" accounts, while
6. accountants might refer to these accounts as "revenue" accounts.
7. a. True b. False
8. 3. The digits of the account numbers assigned to general ledger accounts often have
9. significance. For example, an account number beginning with a "1" might signify that the
10. account is an asset account, a "6" might signify an operating expense, etc.
a. True b. False

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4. The accounts shown in the chart of accounts can be broadly classified into two
categories: statement of financial position accounts and __________ accounts.

5. Every transaction will affect how many accounts?

a. Only One b. Only Two c. Two or more

B. Multiple Choice. Choose the correct answer.

1. The chart of accounts has a list of:-

A. Names of customers and suppliers
B. General ledger account names and numbers
C. Names of each inventory item

2. Name the five main categories that the ledger accounts are grouped under:
A. Assets, credit cards, liabilities, money, contact cards
B. Assets, production, bank register, purchases, sales
C. Assets, liabilities, equity, income, expenses

3. Which category usually has (but not always!) the most accounts?
A. The banking corporation
B. The 10 richest people of the world
C. Expenses

4. What equation does the chart of accounts tie-in with?

A. Accounting equation
B. Wave equation
C. The origin of complex numbers

5. You can split a category into manageable sub-groups?

A. True
B. False

6. Which category do you think an insurance loan would go under?

A. Assets
B. Liabilities
C. Expenses

7. Under which category do you think a new, high cost computer would go ?
A. Expenses
B. Income
C. Assets

8. Which category do you think business Travel & Accommodation costs would go under?
A. Expenses
B. Liabilities
C. Equity

9. Which category do you think wages would go under?

A. Equity
B. Expenses
C. Income

10. Which category do you think the website development costs would go under?
A. Assets
B. Equity
C. Expenses

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Evaluation
I - Below inside the box are the account titles to be used. Prepare a chart of account. Follow the
procedure:
1. Create two columns.
2. Prepare the assets first, then 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.

Cash Accounts Receivable

Prepaid Rent Expense Furnitures & Fixtures
Office Equipment Supplies
Accounts Payable Utilities Payable
Mortgage Payable S. Lim, Capital
S. Lim, Drawings Service Revenue
Salaries Expense Miscellaneous Expense
Repairs & Maintenance Expense

Note: output to be submitted on Monday (March 13, 2023)

Prepared by:

Checked by:
MARIA ASUNCION T. BRIZUELA
FABM1 Teacher
REYNALDO C. CAÑEZO, JR.
Head, Math/ABM