Major Type of Accounts

Major Type of Accounts
Assets
• Assets are probable future economic
benefits obtained or controlled by a
particular entity as a result of past
transactions or events.
Liabilities
• Liabilities are probable future
sacrifices of economic benefits arising
from present obligations of a
particular entity to transfer assets or
provide services to other entities in the
future as a result of past transactions
or events.
Owners' Equity
• Owners' equity is the residual interest
in the assets of an entity after
deducting liabilities.
Assets Are Either Current or
Noncurrent
• Current assets are those assets which
will typically become cash or be
consumed in one year or one
operating cycle, whichever is greater.
Assets Are Either Current or
Noncurrent
• Noncurrent assets are assets used in
the conduct of the business and for
which the replacement cycle is longer
than one year.
Current Assets
• Current assets are listed in order of
their maturity or collectibility.
Current Assets
• Liquidity reflects the ability of the
firm to generate sufficient cash to meet
its operating cash needs and to pay its
obligations as they become due.
Current Assets
• Current assets include cash, accounts
receivable, inventories, and prepaid
expenses.
Cash
• Cash and cash equivalents include
currency, bank deposits, and various
marketable securities that can be
turned into cash on short notice
merely by contacting a bank or broker.
Cash and Cash Equivalents
• Cash is money owned by the
company.
– Cash on hand
– Cash in bank
Accounts Receivable
• Accounts receivable represent credit
sales that have not yet been collected.
Accounts Receivable
• A fast turnover period for accounts
receivable is desirable.
Accounts Receivable
• The longer a debt remains unpaid, the
higher the chance that it will not ever
be paid.
Accounts Receivable
• Accounts receivable are listed on the
balance sheet at their net realizable
value, which is the amount
management thinks it will actually be
able to collect.
Inventory
• Inventory represents items that have
been purchased or manufactured for
resale to customers.
• Cost of unsold merchandise.
Inventory
• Some students feel that inventory
should be reported as a noncurrent
asset, but ask yourself this question:
– Does a business, which earns money by
selling goods, really want its inventory to
remain unsold for over one year?
Prepaid Expense
• These refers to future expenses that
the company has paid for in advance.
It is place in this account until the
services or items are used and
becomes expenses.
Accrued Income
• Revenue earned but not yet collected.
• Interest payments, rents, commission
fees, dividends
Noncurrent Assets
• Noncurrent assets are assets used in
the conduct of the business and for
which the replacement cycle is longer
than one year.
Noncurrent Assets
• Property, plant, and equipment
comprises the most common type of
noncurrent assets. These are used in the
operations of the company
• Intangible Assets
– Patent
– Brand name
– Trade mark
Property, Plant, and
Equipment
• Property usually represents the land
upon which the firm's offices,
factories, and other facilities are
located.
Equipment
• Buildings or plant may include
buildings, warehouses, hospitals, and
myriad other assets.
Equipment
• Equipment includes office furniture,
tools, computers, and the like.
Intangible Assets
• Intangible assets lack physical
substance and yet are important
resources in the regular operations of
a business.
Liabilities
• Liabilities include any probable
obligation that the firm has incurred
as a consequence of its past activities.
• These are obligations that the
company is required to pay.
– Current Liabilities
– Non-current Liabilities
Liabilities
• Current liabilities are short-term
obligations that are expected to utilize
cash or other current assets within a
year.
Liabilities
• Noncurrent liabilities represent
obligations that generally require
payment over periods longer than a
year.
Accounts Payable
• Accounts Payable is the obligation to
pay.
• Includes anything that a firm
purchases on credit.
• Amounts due to suppliers for goods
purchased on account or for services
received on account
Accrued Expenses
• Accrued expenses represent liabilities
for services already consumed but not
yet paid for or included elsewhere in
liabilities.
• Unpaid expenses of the company.
• Salaries payable, taxes payable
Unearned income
• These are customer payments received
before the delivery of goods and
services
• Cash collected in advance; the liability
is the services to be performed or
goods to be delivered in the future.
Noncurrent Liabilities
• Noncurrent liabilities represent
obligations that generally require
payment over periods longer than a
year.
– They are contracts to repay debt at
specified future dates and often place
some restrictions on the activities of the
firm until the debt is fully repaid.
Noncurrent Liabilities
• Notes Payable – amounts due to third
parties supported by promissory notes
• Loans Payable – includes taking
account of receipt of loan, re-payment
of loan principal and interest expense
• Mortgage Payable – liability of a
property owner to pay a loan that is
secured by a property.
Owner’s Equity
• Owner’s Equity represents the
owners’ claims on the assets of the
business.
• Net assets of the business.
– Arithmetically, it is the difference
between assets and liabilities.
Owner’s Equity = Assets – Liabilities

Owner’s Equity
• Capital
– the value of cash and other assets
invested in the business by the owner of
the business
• Drawing
– cash withdrawn by the owner for personal
use from the business.
Income
• Income is the increase in resources
from performance of service or selling
of goods.
• Income increases equity
• Service Revenue & Sales
Expense
• Expense is the decrease in resources
resulting from the operations of
business.
• Expense decreases Equity in the
accounting equation
• Salaries Expense, Interest Expense
Utilities Expense
CHART OF ACCOUNTS
• A listing of the accounts used by
companies in their financial records.
• Helps to identify where the money is
coming from and where it is going.
• The foundation of the financial
statements.
CHART OF ACCOUNTS
• Steps:
1. Create 3 columns
2. Prepare the assets first, then liabilities, then
equity, then income and expenses
3. List all assets, liabilities, equity, income and
expenses account in the first column
4. On the 2nd column, choose an account code
5. On the 3rd column, write the description for
each account on when to use it
#s 1 to 8 Choices
Assets Rent Expense
Liabilities Prepaid Expense
Owner’s Equity Intangible Assets
Cash Notes Receivable
Property, Plant & Equipment
Accounts Receivable
#s 9 and onwards
Identify if the account is an

asset, liability, owner’s equity,
income or expense.

Major Type of Accounts

Uploaded by

Copyright:

Available Formats

Major Type of Accounts

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Major Type of Accounts

Uploaded by

Copyright:

Available Formats

Major Type of Accounts

Owner’s Equity = Assets – Liabilities

Identify if the account is an

You might also like