FUNDAMENTALS OF ACCOUNTANCY SENIOR

BUSINESS AND MANAGEMENT 1 HIGH SCHOOL

BULACAO CAMPUS

SLG 4 : Types of Major Accounts

Subject Code / Number: ABM 03
Subject Title: Fundamentals of Accountancy , Business and Management 1
Teacher: Mr. Reymart B. Saladas

I – Introduction
It is hard to record transactions using assets, liabilities and equity classification. We should use a device to record the
changes in the accounting equation. Let us review and answer the following below.

1. Tangible and intangible items that the Company owns that have value.  _______________ (EASSST)

2. Money that the Company owes to others.  _______________ (ABLITILIESI)

3. Money the company earns from its sales of products or services, and interest and dividends earned from
marketable securities.  _______________ (CINEMO)

4. Money the company spends to produce the goods or services that it it sells.  _______________
(PEENSSEX)

5. That portion of the total assets that the owners or stock holders of the company fully own; have paid for
outright.  _______________(YQUITE)

A. These are the competencies included in this lesson:

1. Discuss the Five Major Accounts (ABM_FABM11- IIId-e-19)

2. Prepare a Chart of Accounts (ABM_FABM11- IIId-e-21)

B. Learning Outcomes

1. The learners will be able to understand the five major accounts in accounting.
2. The learners will get to apprehend more about Assets, Liabilities, Owner’s Equity/Capital,
Income/Revenue, and Expense.
3. The learners will be able to obtain knowledge on the types of accounts and will also get to make their
own Chart of Accounts.

II – Learning Content

What Is It ?

There are five main types of accounts in accounting, namely: assets, liabilities, capital / owner’s equity, income,
and expense. Continue to read below to explore on how each account can be further broken down into several
categories.

FIVE TYPES OF MAJOR ACCOUNTS

1. ASSETS - These are all the economic resources owned by the company and are expected for future gain.
They include property and rights of value owned by the company. Assets refer to items like cash, inventory,
accounts receivable, buildings, land, or equipment.

Assets can be categorized to Tangible and Intangible. Tangible Assets are the physical entities that the business
owns such as its land, buildings, vehicles, equipment, and inventory. While Intangible Assets are the things that
represent money or value such as Accounts Receivables, Patents, Contracts, and Certificate of deposit (CDs).

Two types of Assets:

A. Current Assets - cash and other assets that are expected to be converted to cash within a year.

Examples:

Cash includes coins, currencies, checks, bank deposits, and other cash items readily available for use in
the operations of the business.

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 Cash equivalents are short-term investments that are readily convertible to known amounts of cash
which are subject to an insignificant risk to changes in value.

Marketable securities are stocks and bonds purchased by the enterprise and are to be held for only a
short span of time or duration. They are usually purchased when a business has excess cash.

B. Non-Current Assets - an asset that is not likely to turn to unrestricted cash within one year. It is also
referred to as a long-term asset.

Examples:

a. Long-term investments are assets held by an enterprise for the accretion of wealth through capital
distribution such as interests, royalties, dividends and rentals, for capital appreciation or for other
benefits to the investing enterprise such as those obtained through trading relationships.

b. Property, Plant, and Equipment are tangible assets that are held by an enterprise for use in the
production or supply of goods or services, or for administrative purposes.

i. Land - a piece of lot or real estate

ii. Building - structure used to accommodate the office, store, or factory
iii. Equipment - includes typewriter, air-conditioner, calculator, filing cabinet, computer, electric
fan, trucks, and cars used by the business in its office or factory. Specific account titles may be
used such as: -office equipment, -store equipment, -delivery equipment, -transportation
equipment, and -machinery and equipment.
iv. Furniture and fixtures - include tables, chairs, carpets, curtains, lamp and lighting fixtures.
Specific account titles may be used such as: -office furniture and fixtures - store furniture and
fixtures

2. LIABILITIES - These include the debts or obligations payable to creditors and other outsiders to which your
company owes money. Liabilities are one of three ways in which a business can acquire funding.

Two types of Liabilities:

1. Current Liabilities - amounts due to be paid to creditors within twelve months.

Examples:

a. Accounts payable includes debts arising from the purchase of an asset or the acquisition of
services on account.

b. Notes payable includes debts arising from the purchase of an asset or the acquisition of
services on account evidenced by a promissory note.

c. Loan Payable is a liability to pay the bank or other financing institution arising from funds
borrowed by the business from these institutions payable within twelve months or shorter.

d. Utilities payable is an obligation to pay utility companies for services received from them.
Examples of this are telephone services, electricity, and water services.

e. Unearned revenues represent obligations of the business arising from advance payments
received before goods or services are provided to the customer. This will be settled when certain
goods or services are delivered or rendered.

f. Accrued liabilities include amounts owed to others for expenses already incurred but are not yet
paid. Examples of these are salaries payable, utilities payable, taxes payable, and interest
payable.

2. Non-current Liabilities - are long term liabilities or obligations which are payable for a period longer
than one year.

Examples:

 Mortgage payable is a long-term debt of the business with security or collateral in the form of
real properties.

 Bonds payable is a certificate of indebtedness under the seal of a corporation, specifying the
terms of repayment and the rate of interest to be charged.
3. OWNER’S EQUITY - defines how much your business is currently worth. Owner’s Equity or Capital is an
account bearing the name of the owner representing the original and additional investment of the owner of the
business. It is increased by the amount of net income earned during the year and decreased by the cash or other
assets withdrawn by the owner as well as the net loss incurred during the year. Drawing represents the
withdrawals made by the owner of the business in cash or other assets.

Two types of Equity:

1. Contribution (Investments) - may be start-up capital or a later infusion of cash.

2. Drawing (Withdrawals) - If a business is profitable, the owners often want some of the profit returned
to them.

4. INCOME OR REVENUE - is money the business earns from selling a product or service, or from interest and
dividends on marketable securities. Other names for income are revenue, gross income, turnover, and the "top
line."

Net income is computed as revenue less expenses. Other names for net income include profit, net profit, and the
"bottom line." Income accounts are classified as temporary or nominal accounts. This is because their balance is
reset to zero at the beginning of each new accounting period.

5. EXPENSES - these are money the company spends that allow a company to operate. This may include
advertising costs, utilities, rent, salaries and others. Like revenue accounts, expense accounts are temporary
accounts that collect data for one accounting period and are reset to zero at the beginning of the next accounting
period.

A unique type of Expense account, Depreciation Expense, is used when purchasing Fixed Assets. Costly items,
such as vehicles, equipment, and computer systems, are not expensed, but are depreciated over the life
expectancy of the item. A contra-account, Accumulated Depreciation, is used to offset the Asset account for the
item.

Examples:

 Salaries or wages expense include all payments made to employees or workers for rendering services
to a company.

 Utilities expense is an expense related to the use of electricity, fuel, water, and telecommunication
facilities.

 Supplies expense covers office supplies used by a business in the conduct of its daily operations.

 Insurance expense is the expired portion of premiums paid on insurance coverage such as premiums
paid for health or life insurance, motor vehicles, or others.

 Depreciation expense is the annual portion of the cost of tangible assets such as buildings,
machineries, and equipment charged as expense for the year.

 Uncollectible accounts expense/doubtful accounts expense/bad debts expense means the amount of
receivables charged as expense for the period because they are estimated to be doubtful of collection.

 Interest expenses are the amount of money charged to the borrower for the use of borrowed funds.

“CHART OF ACCOUNTS”

A chart of accounts is a list of all your company’s accounts used, and is listed together in one place. The main
account types include Assets, Liabilities, Owner’s Equity, Income, and Expenses.

Here’s a sample chart of accounts list. This is a chart of accounts for a fictional business: Ewing Cleaning Supply.

Companies in different lines of business will have different looking charts of accounts. The chart of accounts
should give anyone who is looking at it a rough idea of the nature of your business by listing all the accounts
involved in your company’s day-to-day operations.

The chart of accounts is designed to be a map of your business and its various financial parts. A well-designed
chart of accounts should separate out all the company’s most important accounts, and make it easy to figure out
which transactions get recorded in which account.
The following is a sample lecture for setting up a Chart of Accounts:
• 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.

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III – Self- Learning Activities
What’s More
Activity 1: Identify each account if it is part of the Asset, Liability, Owner’s Equity, Income, or Expense. Write your
answers on the spaces provided before each number.

_________________ 1. Partner A, Drawings

_________________ 2. Prepaid Insurance

_________________ 3. Revenue

_________________ 4. Salaries

_________________ 5. Interest Payable

_________________ 6. Land

_________________ 7. Common Stock

_________________ 8. Bonds Payable

_________________ 9. Unearned Revenue

_________________ 10. Office Equipment

_________________ 11. Machinery Equipment

_________________ 12. Uncollectible accounts

_________________ 13. Partner B, Capital

_________________ 14. Wages

_________________ 15. Cash

Activity 2 : 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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IV – Evaluation

Enrichment 1: Identify where you classify the following items.

Account Title Current Asset Non-Current Asset Tangible Intangible

1. Account Receivable
2. Building
3. Cash
4. Computer Equipment
5. Copyrights
6. Delivery Truck
7. Furniture & Fixtures
8. Store Supplies
9. Inventories
10. Land
11. Notes Receivable
12. Office Supplies
13. Accrued Income
14. Prepaid Insurance
15. Prepaid Rent

Enrichment 2: Indicate whether it is an increase (+), decrease (-), or no effect on the asset, liabilities and equity
accounts.

Assets Liabilities Equity

1. Investment of cash in the business _______ _______ _______
2. Purchase of computer equipment for cash _______ _______ _______
3. Billed a customer for services rendered _______ _______ _______
4. Paid salaries _______ _______ _______
5. Purchased office supplies on credit _______ _______ _______
6. Paid advertising expense _______ _______ _______
7. Paid rent in advance for 3 months _______ _______ _______
8. Received cash from customers on account _______ _______ _______
9. Withdrew cash for personal use _______ _______ _______
10. Invested land into the company _______ _______ _______

V – Extension of Learning

Direction: Identify if the account is an asset, liability, equity, income or expense and indicate its normal balance.
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CONGRATULATIONS
FOR COMPLETING THIS MODULE!

VI – References

BOOKS

Ong, Flocer Lao. 2016. Fundamentals of Accountancy, Business, and Management 1. Quezon City: C&E
Publishing, Inc.

Skousen, K. Fred, Earl Stice, and James Stice. 2000. Intermediate Accounting. 14th ed. Vol. 1. Singapore:
Thomson Learning Asia.

WEBSITES

“Teacher Sheila’s Lessons Portal: FABM-1.” n.d. Teacher Sheila’s Lessons Portal. Accessed August 1,
2020. https://bit.ly/303Kp8Y.

“Chart of Accounts: A Simple Guide (With Examples) | Bench Accounting.” n.d. Bench.
https://bench.co/blog/accounting/chart-of-accounts/.

Keynote Support Tutorials. 2010. “Accounting Basics: Assets, Liabilities, Equity, Revenue, and
Expenses.” Keynotesupport.Com. 2010. https://www.keynotesupport.com/accounting/accounting-assets-
liabilities-equit y-revenue-expenses.shtml.

OTHERS

DepEd Curriculum Guide - Fundamentals of Accountancy, Business and Management 1

DepEd Teachers Guide - Fundamentals of Accountancy, Business and Management 1

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