ACCOUNTING BUSINESS MANAGEMENT 1- 5 MAJOR ACCOUNTS.pptx

G11

1. FIVE MAJOR ACCOUNTS

2. OBJECTIV E S At the end of this module, the learners should able to: identify the account as assets, liabilities, capital, income or expenses cite an example of each type of account prepare a chart of accounts

3. The Account Account is the basic storage of information in accounting. It is a record of the increases and decreases in a specific item of asset , liability , equity , income or expense. An account may be depicted through a “ T – account ”. A ‘ T – account ” is called as such because it resembles the letter “ T “ . A “ T ” account has three parts namely: 1. Acco u n t t it l e – descri b e the specif ic item o f as s et, liability, equity, income or expense.

4. 2. Debit Side – the left side of the account. 3. Credit Side – the right side of the account. CASH Cre d it J an . 1 J an 3 Debit 500 1,000 800 J an.4 700 This is the “ account title” The term “ Credit ’ ( Cr ) s imply refers to the right side of the account. It is sometimes refered to as the “value parted with” The term “debit” (Dr) simply Refers to the left side of the account. It is sometimes referred to as the “value received” The difference between the total debits and credits in the account represents the balance of the account ( 500 + 1,000 – 800 = 700)

5. The Five Major Accounts 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.

6. The Five Major Accounts 4. Income is the increase in economic benefits during the accountin g period i n the fo r m o f in f l o ws of cash or other assets or decreases of liabilities that result in increase in equity. Income includes revenue and gains. Revenue -arises in the course of the ordinary activities of the business. e.g. sales, service income. Gains – represent other items that meet the definition of income and may or may not arise in the course of the ordinary activities of an entity.

7. Expenses are decreases in economic benefits during the accounting period in the form of outflows of assets or incidences of liabilities that re sult in decreases in equity. Expenses both includes expenses and losses. expenses - arise in the course of the ordinary activities of the business. losses – represents other items that meet the definition of expenses and may or may not arise in the course of ordinary activities of the business.

8. Classification of Five Major Accounts According to Financial Statements Statement of Financial Position Accounts Income Statement Accounts 1. ASSETS 4. INCOME 2. LIABILITIES 5. EXPENSES 3. EQUITY

9. Statement of Financial Position – (balance sheet) is or components of a complete set of fi nancial statements that shows the financial position of the business. Income Statement- statement that shows the profit and loss of the business.

10. The Five Major Accounts 1. Assets are the resources owned and controlled by the firm. Classification of 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.

11. 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

12. Common types of 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.

13. Common types of Current Assets • 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

14. Common types of Current Assets • Short term investments are the investments made by the company that are intended to be sold immediately

15. Common types of Current Assets • Short term investments are the investments made by the company that are intended to be sold immediately

16. Non-Current Assets Land - the lot on which the building of the business has been constructed or vacant lot which is to be used as future plant site. Building - the structure owned by a business fir use in its operations. Accumulated Depreciation- the total amount of depreciation expenses recognized since the building was acquired and made available.

17. Non-Current Assets Equipment - consist of various assets such that A. Machineries and other factory equipment B . T ranspo r ta t ion equipme n t ( v ehicle s ,del i v e r y trucks) C. Office equipment (computers,laptops) Furniture and Fixtures (desk, cabinets,movable particion)

18. Non-Current Assets 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 copyright.

19. Li a bilitie s ar e the debts an d obl i g ation s o f 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.

20. Non-current Liabilities are liabilities that do not fa ll due (paid, recognized as revenue) within one year after year-end date. Examples include Notes Payable, Loans Payable, Mortgage Payable, etc.

21. 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)

22. Current Liabilities Interest payable- Interest incurred but not yet paid. S alaries Payable – salaries already earned by the employees but not yet paid. Utilities payable – utilities (electricity, water, telephone, internet, cable etc.) Unearned Income is cash collected in advance; the liability is the services to be performed or goods to be delivered in the future.

23. Non-Current Liabilities Loans Payable Mortgage Payable

24. Owner’s Equity Owner’s Equity is the residual interest of the o wner 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.

25. Income Statement Accounts Income is the Increase in resources resulting from p erformance of service or selling of goods. Income increases equity. Examples of Income Accounts. Service fees-revenue earned from rendering services. Sales (revenue earned from the sale of goods.)

26. Income Statement Accounts Interest income -revenue earned from the issuance of interest bearing receivables.

27. Expense is the decrease in resources resulting from the operations of business . E xpenses decreases Equity in the accounting equation Examples of Expense Accounts Salaries Expense -represents the salaries earned by the employees for the services they have rendered during the accounting period.

28. F reigh t ou t - r e presen t s the seller ’ s co s t o f del i v ering goods to customers. Rent expense- represents the rentals that have been used up during the period. Supplies expense - r e presen t s the cost o f supplies that have been used during the period. Utilities expense- represents the cost of utilities that have been used during the period.

29. Bad debt expense- the amount estimated losses from uncollectible accounts receivable during the period. D epreciation expense- the cost of depreciable asset that has been allotted to the current accounting period. Advertising expense- represents the promotional or marketing activities during the period. Insurance expense - r e presen t s the cost o f insurance pertaining to the current accounting period.

30. Taxes and licenses- represents the cost of business and local taxes required by the government for the conduct of business. Transportation and travel expenses Interest expenses Miscellaneous expense

31. CHART OF ACCOUNTS is a listing of the accounts used by companies in their financial records, it is usually arranged in the financial statement order (assets, liabilities, equity, income and expenses). Its function is to guide the accountant or bookkeeper in ensuring uniformity of and consistency in the use of all the accounts in recording business transaction.

32. Steps on How to prepare chart of account Create two columns; Prepare the assets first, then liabilities, next is the owner’s equity, followed by revenues and expenses; On the first column, write or choose an account number/code (discretion of the company), and List all assets, liabilities, owner’s equity, revenue and expenses account on the second column.

33. THANK YOU VERY MUCH!