FABM (Group 1)

MAJOR
ACCOUNT
S
GROUP 1
Transactions can be summarized into
similar groups or accounts. A
company compiles a list of accounts
to make the chart of accounts. There
five major accounts namely:
Assets, Liabilities, Owner’s Equity,
Income & Expenses. Let’s look at
each one individually. We will look at
the broad picture of each category
found in a Balance Sheet or Statement
of Financial Position as you will learn
the details later in the module.
01
ASSETS
ASSETS
Assets are something you own or have
and they are resources you expect to
gain a benefit from in the future.
Depending on the nature of the business
there are many things that can be
classified as assets.
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.
ASSETS
• 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.
ASSETS
• Tangible Assets are physical assets
such as cash, supplies, and furniture
and fixtures.
• Intangible Assets are non-physical
assets such as patents and trademarks
02
LIABILITIES
LIABILITIES
are something that business owes to a
non-owner (debt and business
obligations). Liabilities can be easily
identified as the account will most often
end with the word “payable” since it is
something we must pay someone in the
future.
LIABILITIES
Current Liabilities. Liabilities that fall
due (paid, recognized as revenue) within
one year after year-end date. Non-
current Assets are liabilities that do not
fall due (paid, recognized as revenue)
within one year after year-end date.
03
EQUITY
EQUITY
Equity accounts represent the value of
the owner’s investment in the company.
The equity accounts are different based
on the type of company.
EXAMPLE
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 with
promissory notes.
• Inventories are assets held for sale
EXAMPLE
Current Assets
• 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
EXAMPLE
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
with promissory notes.
EXAMPLE
Equity
• Capital account is used to record investment of
the owners and income earned by the company
in a sole-proprietorship and partnership. A
withdrawal (or drawing) account is used when
the owner takes money for personal use.
EXAMPLE
Equity
• A common stock account is used to record the
investment of the owners in a corporation. A
retained earnings account is used to record the
earnings of a corporation and to record when
earnings are given back to the owners in the
form of dividends.
04
REVENUES
REVENUES
• Revenues/Income represent the value
of the goods or services provided.
• This is an increase in the resources
resulting from a service rendered or
goods sold.
• It increases equity.
05
EXPENSES
EXPENSES
• are costs to the company and reflect
the outflow of money.
• Expenses decreases Equity in the
accounting equation
• these expenses represent all costs of
doing business and are used in order
to generate the revenue.
EXAMPLE
Revenues
• Service Revenue (revenue from completing a
service, could be specific like accounting service
revenue, spa service revenue)
• Earnings made by any business that rendering
services. Sales Revenue (value of products sold)
EXAMPLE
Expenses
• Rent Expense (cost of renting office space or
equipment)
• Supplies Expense (cost of supplies used)
• Advertising Expense (cost of advertising)
• Bank Service Fees (cost of bank charges)
• Cost of Good Sold (what is paid for the
inventory sold)
EXAMPLE
Expenses
• Interest Expense (interest from loans)
• Utilities expense ( cost of electricity, water and
telephone bills)
• Fuel Charges (cost of fuel used in the operation
of the business
• Salaries Expense - is fixed pay earned by
employees
EXAMPLE
Expenses
• Interest Expense (interest from loans)
• Utilities expense ( cost of electricity, water and
telephone bills)
• Fuel Charges (cost of fuel used in the operation
of the business
• Salaries Expense - is fixed pay earned by
employees
Chart of
Accounts
A chart of accounts is a listing of the accounts
used by companies in their financial records.
The chart is used in the general ledger of an
organization to aggregate information into an
entity’s financial statement. It is sorted in order
by account number, to ease the task of locating
specific accounts. The chart of accounts helps
to identify where the money is coming from
and where it is going.
There is no common structure or template
of chart accounts available for the use of
all types of businesses. Each company
prepares its own chart of account
depending on their kind of business.
However, the following are the steps in the
preparation of a basic chart of accounts:
• Create three columns
• Prepare the assets first, then liabilities, then equity, then
revenue and expenses
• List all assets, liabilities, equity, revenue and expenses
account in the first column
• On the second column, choose an account code
(discretion of the company)
• On the third column, write the for each account on when
to use it
EXAMPLE
QUIZ
TRUE or FALSE
1. The company complies a list of accounts such as assets,
liabilities, owner's equity, income & expenses to make the
chart of accounts.
2. Current Assets are assets that can't be realized.
3. Liabilities are something you own or have and they are
resources you expect to gain a benefit from the future.
4. Equity accounts represent the value of the owner's
investment in the company.
5. Chart of Accounts is a listing of the accounts used by
companies in their financial records.
IDENTIFICATION
1. The physical assets such as cash, supplies, and furniture
and fixtures.
2. It represents the value of goods or services provided.
3. It costs to the company and reflect the outflow of the
money.
4. Examples of this are Accounts Payable, Notes Payable,
Accrued Expenses, and Unearned Income.
5. It is used in the general ledger of an organization to
aggregate information into an entity's financial
statement.
ANSWER KEY
1.TRUE 1.TANGIBLE ASSETS
2.FALSE 2.REVENUES
3.FALSE 3.EXPENSES
4.TRUE 4.CURRENT
5.TRUE LIABILITIES
5.CHART OF
ACCOUNTS

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