Account Titles Commonly Used in Business

TYPICAL ACCOUNT TITLES USED

ASSETS
Philippine Accounting Standards (PAS) 1 states that Assets should be
classified as either Current Assets or Non-Current Assets. An asset is
said to be current if:
a. it expects to realize the asset, or intends to sell or consume it, in its normal
operating cycle
b. it holds the asset primarily for the purpose of trading
c. it expects to realize the asset within twelve months after the reporting period;
or
d. the asset is cash or cash equivalent unless the asset is being restricted from
being exchanged or used to settle a liability for at least twelve months after the
balance sheet date. 
Operating cycle is the period of time when the entity acquires assets,
process it, sells it and realize or converts back to cash or cash equivalents.
When the operating cycle of an entity is not clearly identifiable, it is
assumed to be twelve months.

Those assets that do not meet the criteria of a current asset will be classified as
non-current asset.

CURRENT ASSETS
1.Cash- is any medium of exchange that a bank will accept for deposit at face
value. It includes coins, currency, checks, money orders, bank deposits and
drafts
2. Cash equivalents- PAS 7 defines cash equivalents as highly liquid
investments that are readily convertible to cash and are subject to an
insignificant risk of changes in value.
3. Notes Receivable- it is a written pledge that the customer will pay the
business a fixed amount of money on a certain date.
4. Accounts Receivable- these are claims against customers arising from the
sale of services or goods on credit. This has less security as compared to
promissory notes.
5. Inventories- these are assets which are 
(a) held for sale in the ordinary course of business
(b) in the process of production for such sale
(c) in the form of materials or supplies to be consumed in the production process
or in the rendering of services.
6. Prepaid Expenses- these are expenses paid by the business in advance.
Example are Insurance and Rent. If the company pays on January 1 for a one-
year insurance, then it is termed as prepaid Insurance. When the time comes
that it contributes to the earning process, it will be recorded as expense. 

NON-CURRENT ASSETS
7. Property, Plant and Equipment (PPE)- PAS16 defines this asset as tangible
assets that are held by an enterprise for use in the production or supply of goods
or services, or for rental to others, or for administrative purposes and which are
expected to be used during more than one period. These includes land, building,
machinery and equipment, furniture and fixtures, motor vehicles and equipment
8. Accumulated Depreciation- it is a contra asset account that totals the
depreciation charges of the property, plant and equipment. This has a normal
balance of CREDIT contrary to PPE which has a normal balance of DEBIT. The
balance of accumulated depreciation is deducted from the Cost of the related
asset to arrive at its book value. The book value of the long-term asset is shown
in the statement of financial position.
9. Intangible Assets- as per PAS 38, intangible assets are identifiable,
nonmonetary assets  without physical substance that are held for use in the
production or supply of goods or services, for rental to others, or for
administrative purposes. These include goodwill, patents, copyrights, licenses,
franchises, trademarks, brand names, secret processes, subscription lists and
non-competition agreements.

LIABILITIES
Same as Assets, liabilities are also classified as Current and Non-Current
as per PAS 1. Those liabilities that meet the criteria below will be
 classified as Current while those that do not meet will be classified as
Non-Current.
a. it expects to settle the liability in its normal operating cycle.
b. it holds the liability primarily for the purpose of trading
c. the liability does not have an unconditional right to defer settlement of the
liability for at least twelve months from the statement of financial position date.
 
Current Liabilities
1. Accounts Payable- This account represents the reverse relationship of the
accounts receivable. By accepting the goods or services, the buyer agrees to
pay for them in the near future.
2. Notes Payable- A note payable is like the note receivable but in a reverse
sense. In the case of a note payable, the business entity is the maker of the
note; that is the business entity is the party who promises to pay the other party a
specified amount of money on a specified due date.
3. Accrued Liabilities- Amounts owed to others for unpaid expenses. This
account includes salaries payable, utilities payable, interest payable and taxes
payable.
4. Unearned Revenues- When the business entity receives payment before
providing its customers with goods or services, the amounts received are
recorded in the unearned revenue account (liability method). When the goods or
services are provided to the customer, the unearned revenue account is reduced
and income is recognized. 
5. Current Portion of Long-Term Debt- These are portions of mortgage notes,
bonds and other long-term indebtedness which are to be paid within one year
from the statement of financial position.
 
NON-CURRENT LIABILITIES
6. Mortgage Payable-This account records long-term debt of the business entity
for which the business entity has pledged certain assets as security to the
creditor. If the debt payments are not made, the creditor can foreclose or cause
the mortgaged asset to be sold to enable the entity to settle the claim.
7. Bonds Payable- Business organizations often obtain substantial sums of
money from lenders to finance the acquisition of equipment and other needed
assets. They obtain these funds by issuing bonds. The bond is a contract
between the issuer and the lender specifying the terms of repayment and the
interest to be charged.

OWNER's EQUITY
Owner's equity is the net interest of the owner in the business. It is
computed as the difference between total assets and total liabilities or is
termed as the net assets of the business.
1. Capital- from the Latin word capitalis meaning property, this account is used
to record the investment of the owner. It is increased by additional investment
made by the owner as well as net income earned by the business. It is then
reduced when the owner withdraws its investments, or the business incurs
losses.
2. Withdrawals- It is a temporary account that is used to record the withdrawal
of the business owner of cash or other asset from the business. 
3. Income Summary- It is a temporary account that is used to close the income
and expenses of the business at the end of the accounting period. The resulting
amount would bring either net income or net loss. When total income is greater
than total expenses, the company has net income while if the total expenses are
greater than the total income, the business generates net losses.
 
B. Under STATEMENT of FINANCIAL PERFORMANCE
INCOME
1. Service Income- revenues earned when performing services to a client like
accounting services by CPAs, legal services by lawyers, medical services by
medical doctors, laundry services by laundry shop owners, etc. 
2. Sales- revenues earned as a result of sale of merchandise. Example sales of
clothes and shoes by SM department store, Sales of grocery items by Puregold.

EXPENSES
1. Cost of Sales- the cost incurred to purchase or produce the products being
sold.
2. Salaries or Wages Expense- includes all payments as a result of the
employer-employee relationship such as salaries, wages, 13th month pay, 14th
month pay, cost of living allowances and other related benefits
3. Telecommunications, Electricity, Fuel and Water Expenses- expenses
related to the use of telecommunication facilities, and consumption of electricity,
fuel and water. 
4. Rent Expense- expenses for the use of space, equipment or other assets for
rentals.
5. Supplies Expense-Expense of using supplies in the course of doing
business.
6. Insurance Expense-Portion of premiums paid on insurance coverage. 
7. Depreciation Expense- The portion of the cost of assets with physical
substance charged to expenses during the period. 
8. Uncollectible Accounst Expense or Bad Debts Expense-The amount of
receivables that are estimated to be doubtful of collection and charged to
expense during an accounting period.
9. Interest Expense- Expense related to borrowed funds. This is the cost of the
funds borrowed which shall be paid in addition to the principal amount owed.