Fundamentals of

Accountancy, Business &

Management 1 Accountancy
Quarter 3 – Week 3
Topic:
The Five Major Accounts

Second Semester
 Lesson: The Five Major Accounts  oral promises to the entity to
receive cash at a later date
Most Essential Learning Competencies:  amounts due from customers
1. discuss the five major accounts Week 4 arising from credit sales or credit
ABM_FABM11- IIId-e-19 services
2. Prepare a Chart of Accounts  Claim against customer arising
ABM_FABM11- IIId-e-21 from sale of service or goods on
credit
3. Short-term investments – contains
TYPES OF MAJOR ACCOUNTS the company’s investment in low-
risk, highly liquid assets such as
1. Assets. These are resources that an bonds and stocks, which are
entity owns in order to derive some expected to be liquidated in less than
future benefit. Assets are used by the a year.
company in its normal operations such
as the manufacture of goods or delivery 4. Notes Receivable
of services.  represents promises to the entity
to receive cash at a later date,
2. Liabilities. These are one of the claims with the main distinction that
of external parties from the entity. notes receivable are all written
These are debts of the entity to external and hence more formal that
creditors. accounts receivable.
 amounts due from clients
3. Equity. The equity reflects the residual supported by promissory note
claim or net asset of the owners of the  A written pledge that a customer
entity. This is similar to the “net worth” will pay the business a fixed
part of the SALN of our public servant. amount of money on a certain
date
4. Revenue. These are the amounts 5. Inventories
received by a business as a result of  anything that is normally held for
selling something or rendering a sale in the ordinary course of
service. business
6. Supplies
5. Expenses  items purchased by an enterprise
which are unused as of the
ASSETS reporting date
1. Current Assets. These are the assets 7. Prepayment/Prepaid Expense
which are expected to be realized within  amount simply paid in advance
the ordinary course of business, or a for goods or services anticipated
span of 12 months, whichever is longer. to be received by the entity in the
future
2. Non-current Assets. All other assets
which are not current basically fall into Non-current Assets
the definition of non-current assets. 1. Fixed Assets
 The most tangible, longest –
Current Assets serving assets a company have
1. Cash and Cash Equivalents (Land, Equipment, Buildings)
 any medium of exchange that a 2. Intangible Assets
bank will accept at face value  lacks physical substance and yet
 It includes coins, currencies, are similarly realizable over long
checks, bank deposits periods of time (Patents,
2. Accounts Receivable trademarks, copyrights, licenses,
 franchises, goodwill, secret which the business entity has
processes and etc.) pledged certain assets as security to
3. Accumulated Depreciation the creditor
 A contra account that contains
the sum of the periodic EQUITY/OWNER’S EQUITY
depreciation charges 1. Capital - use to record the original
and additional investments of the
LIABITLITIES owner of the business entity
1. Current Liabilities. These are expected
2. Withdrawals - used to record
to be settled or paid out by the entity
within 12 months owner’s withdrawal of cash or other
assets
2. Non-current Liabilities. These are 3. Income Summary - a temporary
liabilities which the entity expects to account used at the end of the
settle after more than a year, or have the accounting period to close revenues
legal or contractual capacity to defer and expenses
payment accordingly.
REVENUE - The amount of money that a
Current Liabilities company receives from the operation of the
1. Accounts Payable – the opposite of business
accounts receivable; in the accounts
receivable, the entity is on the 1. Operating revenue – revenues that
receiving side, the entity is now on originate from main business
the paying side operations (e.g. sales, service revenue.
2. Notes Payable – are written Etc.)
promises of the entity to pay a sum 2. Non-operating revenue – revenue that
certain in a future determinable time does not originate from main business
3. Accrued Liabilities – all other operations and are results of some side
accounts which the company should activity (e.g. Interest revenue, rent
pay, arising from a normal course of revenue of a business not engaged in the
business renting industry)
4. Current Portion of Long-term
Debts – these are the long –term Examples of revenue accounts:
debts payable within the coming 1. Sales Revenue
year. 2. Service Revenue
5. Unearned Revenues - an entity 3. Interest Revenue
receives payment before providing its 4. Divided Revenue
customers with goods or services 5. Contributions Revenue

Non-current Liabilities Gains – increases in equity as a result of

1. Bond Payable - form of long-term non-recurring activities or the increase in
debt, often in huge sums, contained value of investments
in an agreement called as the “bond Capital Contributions – increase in equity
indenture” as a result of transactions with owners
 A bond is a contract between the
issuer and the lender specifying a EXPENSES – Money spent or cost incurred in
term of repayment and the an organization's efforts o generate revenue,
interest to be charged representing the cost of doing business
2. Mortgage Payable - records long
term debt of the business entity for
Examples of expense accounts:
1. Cost of Goods Sold - the cost incurred to purchase or produce the products sold to customers
2. Utility Expense - the amount paid for water, electricity, communication
3. Depreciation Expense - A result for using a building or equipment
 4. Supplies Expense – Expense of using supplies
5. Insurance Expense – portions of premium paid on insurance coverage (motor vehicle, health,
life, fire, typhoon) which has expired
6. Salaries Expense - Result of recognizing salaries/wages of a company’s employee
7. Bad Debt Expense - An estimate of how much accounts receivable the company will not be able
to collect
8. Interest Expense - Interest incurred as a result of borrowing money

CHART OF ACCOUNTS
ASSETS LIABILITIES REVENUE EXPENSE
Cash Accounts Payable Service Revenue Salaries Expense
Account receivable Notes Payable Sales Supplies Expense
Allowance for Bad Debts Accrued Expenses Sales Return and Allowances Utilities Expense
Inventory Salaries Payable Sales Discounts Communication Expense
Prepaid Expenses Utilities Payable Interest Income Travel Expense
Income taxes
Supplies Payable Cost of Sales Rental Expense
Office equipment Purchases Fuel Expense
Purchase Return and
Accumulated Depreciation - Office Equipment Allowances Advertising Expense
OWNER'S
Store Equipment EQUITY Purchase Discounts Delivery Expense
Accumulated Depreciation - Store Equipment Owner's Capital Freight in Commission Expense
Owner's
Transportation Equipment Withdrawal   Depreciation Expense
Accumulated Depreciation - Transportation Equipment   Taxes and Licenses Expense
Building   Interest Expense
Accumulated Depreciation – Building
Land
Intangible Assets

Assessment:
A. Directions: Determine what ACCOUNT TITLE and group according to MAJOR ACCOUNT. Fill in
the chart.

1. He purchased table napkins worth ₱200 to be used in your barbecue operations.

2. The customer with the ₱500 account receivable is broke you have estimated that you can only
collect ₱420 from him.
3. He hired a helper in a barbecue business. The employee earns compensation of ₱8,000.
4. The cost of barbecue that was sold for ₱500 is ₱300.
5. He paid Justin Bieber ₱5,000, 000 to endorse the product.
6. On your total account receivable of ₱500, you expect to collect only about ₱480.
7. The barbeque grill was stolen.
8. He received an order of barbecue worth ₱800. The customer paid the sale price but instructed
you to deliver the barbecue next week
9. He made a temporary withdrawal of ₱200 from your barbecue business.
10. He expects to use the barbecue grill for 5 years.

Account Title Major Account

Example:
1. Supplies Expense
B. An assessment will be done through a call (via cell phone or messenger). All you need to do is
to study and familiarize yourself with all the accounts listed in the Learning Activity Sheet. If
you have a question about this activity, please feel free to message me.
Example:
An oral promise to pay ; ACCOUNTS RECEIVABLE