Abm Research

Interworld Colleges Foundation Inc.
Burgos St., Paniqui, Tarlac
S.Y. 2017-2018
A
Research on
ACCOUNTS
In partial fulfillment of the subject requirements in Fundamentals of Accountancy, Business and

Management Part 2
Submitted by:
(Michelle Agustin, Jenny Rose Alberba, Olbap Czar Tiansing, Godwin Domingo)
Submitted to:
Jaydee D. Abraham
Instructor
TABLE OF CONTENTS
I. History of Accounting
II. Elements of Financial Statements
III. Chart of Accounts
i. Asset Accounts
ii. Liability Accounts
iii. Equity Accounts
iv. Revenue Accounts
v. Expense Accounts
IV. Account Titles Descriptions, Example Transactions and Journal Entries
i. Asset Accounts
ii. Liability Accounts
iii. Equity Accounts
iv. Revenue Accounts
v. Expense Accounts
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I. History of Accounting
Accounting is the system of recording, classifying and summarizing financial information in such a
way that users of the information can make economic decisions based upon it. Accounting began as a
simple system of clay tokens to keep track of goods and animals, but has developed throughout history
into a way of keeping track of complex transactions and other financial information.
Accountancy has its roots in the earliest history of civilization. With the rise of agriculture and trade,
people needed a way to keep track of their goods and of transactions.
Around 7500 B.C., Mesopotamians began using clay tokens to represent goods, such as animals,
tools, food items or units of grain. This helped owners keep track of their property. Instead of counting
heads of cattle or bushels of grain every time one was consumed or traded, people could simply add or
subtract tokens. Different shapes were used for different goods.
Around 4000 B.C., the Sumerians began placing these tokens in sealed clay envelopes. Each
token would be stamped into the clay of the outside of the envelope, so the owner would know how many
tokens were inside, but the tokens themselves would be kept safe from tampering or loss. This practice of
pressing the tokens into the clay may have been the earliest genesis of writing.
A few hundred years later, more complex tokens began to be used. These tokens had special
markings to denote different units or types of goods.
Starting around 3000 B.C., the Chinese developed the abacus, a tool for counting and calculating.
Double-entry Bookkeeping and Luca Pacioli
Throughout much of ancient history and the Middle Ages, accountancy remained a fairly simple
affair. The adoption of coinage meant that accounting now dealt with money rather than actual goods, but
single-entry bookkeeping, much like that used in modern check registers, was used to keep track of
money exchanged, where it went and who owed what. During and after the Crusades, European trade
markets opened up to Middle Eastern trade, and European merchants, especially in Genoa and Venice,
became increasingly wealthy. They needed a better way to keep track of large amounts of money and
complex transactions, and this led to the development of double-entry bookkeeping. Double-entry
bookkeeping means that each transaction is recorded at least twice, as a debit from one account and a
credit to another.
In 1494, a Franciscan monk and mathematician named Luca Pacioli published a math book titled
"Summa de arithmetica, geometria, proportione et proportionalita," which contained a description of
double-entry accounting. As the book's popularity grew, double-entry accounting began to sweep Europe,
as merchants realized what a valuable tool it gave them for keeping track of detailed financial
information. For this accomplishment, Luca Pacioli is often called the "Father of Accounting." Still, at
this point in history, accountancy was not yet a specific profession, but rather an extension of the clerical
duties of scribes, officials, bankers and merchants.
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II. Elements of Financial Statements
Financial statements are the importance reports of entity that provide the entitys financial
information at the specific period of time for managements, investors, shareholders, and others related
stakeholders. These statements are prepared as the requirement of management, owners, shareholders,
governments, and others related authority organization. The completed set of financial statement contain
five statements, and here are they:
Statement of Financial Position or Balance Sheet
Statement of Financial Performance, or Income Statement
Statement of Change in Equity
Statement of Cash flow
Noted to Financial Statements.
These Financial Statements contain five main element of entitys financial information, and these
five element of financial statements are:
1. Assets
The official definition of assets are define by IASBs Framework for preparation and
presentation of financial statements are the resources control by the entity as the result of past events
and from which the future economic benefits are expected to flow the entity.
Assets consider as the first element of financial statement and they report only in the balance
sheets. They are stay on the top of balance sheets. In general, assets classified into two types based
on company policies and in accordance with international accounting standard. First class of assets
are current assets which refer to short term assets and these kind of assets are not depreciation. The
movement of its are directly go to income statements. The second types of assets are fixed assets.
These kind of assets normally refer to assets that use more than one year and with big amounts. It is
based on company policies to recognize which amount should be classed as current assets and which
amount to go to fixed assets. Yet, the policies should be reasonable based on current practice or
market.
2. Liabilities
The official definition of liabilities are define by IASBs Framework for preparation and
presentation of financial statements are the present obligations arising from the past events, the
settlement of which is expected to result in an outflow from entity resources embodying economic
benefit.
Liabilities are classified into two different type: Current liabilities and Non current Liabilities.
Current Liabilities refer to kind of liabilities that expected to settle within 12 months after the
reporting date. For example salaries payable are classed as current liabilities because they are
expected to pay to employee in the following month. Non current liabilities refer to liabilities that
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expected to settle in more than 12 months. For example, long term loan from bank that the term of
payments are more than 12 are classed as non current liabilities. Liabilities records only in balance
sheet and they are consider as the second element of financial statements.
3. Equity
Equity is officially defined by IASBs Framework for preparation and presentation of financial
statements, is the residual interest in the assets of the entity after deducting all its liabilities.
Example: By solving the above definition, Equity = Assets Liabilities. The good example of
Equity are Ordinary Shares Capital, and Retained Earning. That mean equity increase or decrease
depending on the movement of assets and liabilities. For example, if assets are increase, one the
liabilities stable, then equity will increase. However, if assets are stable and liabilities are increase,
the equity will decrease.
4. Revenues
The official definition of revenues defined by IASBs Framework for preparation and
presentation of financial statement is increase in the economic benefits during the accounting period
in the form of inflows or enhancements of assets or decrease of liabilities that result in increases in
equity, other than those relating to contributions from equity participants.
The example of revenues are sales revenue from selling of goods or rendering of services,
interest incomes from banks deposits, dividend received from equity investments. Income statement,
income sometime called sales revenues or Revenues. These are referred to the same things.
There are two accounting principle that use to records and recognize revenues. First, it use cash
basic, and second it use accrual basic. Cash basic, income is recognized at the time cash are received
while accrual basic, income recognize at the time risks and reward are transferred from sellers to
buyers.
5. Expenses
The official definition of Expenses defined by IASBs Framework for preparation and
presentation of financial statement is decreases in economic benefits during the accounting period in
the form of outflows or depreciation of assets or incurred of liabilities that result in decreases in
equity, other than those relating to distributions to equity participants.
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CHART
OF
ACCOUNTS
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ASSET ACCOUNTS
CURRENT ASSETS
CASH AND CASH EQUIVALENTS
Cash on Hand
Petty Cash Fund
Cash in Bank
SHORT-TERM INVESTMENTS
Certificates of Deposit
Stock Investments
Investment in Bonds
Other Short Term Investments
RECEIVABLES
Accounts Receivable
Allowance For Bad Debts (Contra Account)
Interest Receivable
Rent Receivable
Other Receivables
INVENTORY
Raw Materials Inventory
Work In Process Inventory
Finished Goods Inventory
Merchandise Inventory
Unused Supplies
PREPAID EXPENSES
Prepaid Insurance
Prepaid Rent
Prepaid Advertising
Prepaid Interest
Other Prepaid Expenses
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OTHER CURRENT ASSETS
Short Term Notes Receivable
NONCURRENT ASSETS
LONG-TERM INVESTMENTS
Investment in Bonds
PROPERTY, PLANT, AND EQUIPMENT
Land
Buildings
Land Improvements
Accumulated Depreciation-Land Improvements
Accumulated Depreciation - Buildings (Contra Account)
Building Improvements
Accumulated Depreciation - Building Improvements (Contra Account)
Equipment
Accumulated Depreciation - Equipment (Contra Account)
Office Equipment
Accumulated Depreciation - Office Equipment (Contra Account)
Vehicles
Accumulated Depreciation - Vehicles (Contra Account)
Furniture and Fixtures
Accumulated Depreciation - Furniture and Fixtures (Contra Account)
Leasehold Improvements
Accumulated Amortization - Leasehold Improvements (Contra Account)
INTANGIBLE ASSETS
Patents
Accumulated Amortization-Patents
Copyrights
Accumulated Amortization-Copyrights
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LIABILITY ACCOUNTS
CURRENT LIABILITIES
Accounts Payable
Notes Payable
Income Tax Payable
Salaries Payable
Rent Payable
Utilities Payable
Interest Payable
Telecommunications Payable
Unearned Revenues
Other Current Liabilities
NON-CURRENT LIABILITIES
Long-Term Notes Payable
Bonds Payable
Mortgage Payable
Other Non-Current Liabilities
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EQUITY ACCOUNTS
Sole Proprietorship
Owner's Capital
Owner's Drawing
Partnership or Limited Liability Company
Partner's or Member's Capital
Partner's or Member's Drawing
Corporation
Common Stock
Paid-In Capital
Treasury Stock
Retained Earnings
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REVENUE ACCOUNTS
Service Revenue
Sales
Sales Discounts
Sales Returns and Allowances
Rent Income
Interest Income
Commission Income
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EXPENSE ACCOUNTS
Cost of Sales
Purchases
Freight in
Advertising Expense
Bank Service Charge
Delivery Expense
Depreciation Expense - Buildings
Depreciation - Building Improvements
Depreciation Expense - Equipment
Depreciation Expense- Office Equipment
Depreciation Expense- Vehicles
Depreciation Expense- Furniture and Fixtures
Amortization Expense- Leasehold Improvements
Amortization Expense-Patents
Amortization Expense -Copyrights
Insurance Expense
Interest Expense
Rent Expense
Representation Expense
Salaries Expense
Supplies Expense
Licenses and Permits
Telecommunications Expense
Training and Development
Utilities Expense
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IV. Account Titles Description, Example Transaction and Journal Entries
ASSET
CURRENT ASSETS
A current asset is an item on an entity's balance sheet that is either cash, a cash equivalent, or which
can be converted into cash within one year. If an organization has an operating cycle lasting more than
one year, an asset is still classified as current as long as it is converted into cash within the operating
cycle.
CASH AND CASH EQUIVALENTS
Anything accepted by a bank for deposit is considered as Cash or Cash Equivalents. Cash in the form
of coins and currency, undeposited checks, money orders, deposits in banks are examples. The cash must
be available for immediate use and not restricted in any manner.
1. Cash on Hand
Funds that are immediately available to a business, and can be spent as needed, as opposed to
assets that must be sold to generate cash.
Example Transaction:
The owner invested 100,000 to the business.
Journal Entry
Date Particulars Dr Cr
Cash on Hand 100,000
Owners Capital 100,000
2. Petty Cash Fund
Petty cash fund is a relatively small amount of cash that businesses keep on hand for the purpose
of small transactions such as providing change to customers, postage expenses, highway tolls etc. In
such transactions, the use of checks is time consuming, costly or illogical.
The Company created a petty cash fund of 50,000.
Journal Entry
Petty Cash Fund 50,000
Cash in Bank 50,000
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3. Cash in Bank
The sum of all coins, currency and other unrestricted liquid funds that have been placed on
deposit with a financial institution.
The company deposited 500,000 in the bank.
Journal Entry
Cash in Bank 500,000
SHORT-TERM INVESTMENTS
Short-Term Investments include readily marketable securities that can easily be sold and converted
back into cash. These type of investments normally result from a business in the lucky position of having
excess cash available.
1. Certificates of Deposit
A certificate of deposit, also referred to as a CD, is a time deposit at a bank, credit union, or
other financial institution. However, the certificate of deposit cannot be withdrawn until an agreed
upon date known as its maturity date. If a withdrawal becomes a necessity, the financial institution
will assess a penaltyusually the loss of interest.
The Company purchases a 500,000 CD at a fixed interest rate of 4% and maturity in 1 year.
Journal Entry
Certificate of Deposit 500,000
2. Stock Investments
Stocks are an equity investment that represents part ownership in a corporation and entitles you
to part of that corporation's earnings and assets.
The Company bought the 1,000 shares of common stocks in Company B amounting to
100,000.
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Journal Entry
Stock Investments 100,000
3. Investment in Bonds
A bond (at the purchase price plus brokerage fees and other incidental acquisition costs) is a
debt investment in which an investor loans money to an entity (typically corporate or governmental)
which borrows the funds for a defined period of time at a variable or fixed interest rate. Bonds are
used by companies, municipalities, states and sovereign governments to raise money and finance a
variety of projects and activities. Owners of bonds are debt holders, or creditors, of the issuer.
The company purchases 250,000 bonds to Company B with 5% interest within a year.
Journal Entry
Investment in Bonds 250,000
4. Other Short Term Investments
This account is used to recognize the amount of other investments carried at cost.
RECEIVABLES
Included in this category are Accounts Receivable (open account customer balances resulting from
sales) and customer Notes (principal and interest resulting from sales) that are formalized agreements and
evidenced in writing. Short term temporary loans and advances are also included. An allowance for
estimated uncollectible amounts is also provided.
1. Accounts Receivable
Accounts receivable is the money that a company has a right to receive because it had provided
customers with goods and/or services.
The company sent a bill to customers amounting to 50,000 for services rendered.
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Journal Entry
Accounts Receivable 50,000
Service Income 50,000
2. Allowance For Bad Debts (Contra Account)
Used to record customer accounts that may not be collected.
The company confirmed that 50,000 of accounts receivable was noncollectable.
Journal Entry
Allowance for Bad Debts 50,000
3. Interest Receivable
The current asset that represents the amount of interest revenue that was reported as earned, but
has not yet been received.
The customer owes 12% interest on a 6 months, 250,000 note receivable but has not yet made
any payments.
Journal Entry
Interest Receivable 15,000
Interest Income 15,000
4. Rent Receivable
Rent Receivable is a balance sheet asset account which indicates the amount of rent that has
been reported as having been earned, but the money has not yet been collected.
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The Company leases its building space to a tenant. The tenant agreed to pay monthly rental fees
of 100,000. On December 31, 2017, the Company did not receive the rental fee for December yet.
Journal Entry
Rent Receivable 100,000
Rent Income 100,000
5. Other Receivables
This account is used to recognize amount due from debtors and other agencies not falling under
any of the specific receivable account. This also includes receivables from individuals or entities
intended for specific projects or purpose not falling under any of the specific receivable account.
INVENTORY
The accounts set up in the inventory section depend on the type of business. Is the business a service,
retailer, wholesaler or manufacturer ? For retailers and wholesalers an inventory sub ledger is usually
maintained to keep track of each individual product. Manufacturing types of businesses usually and
Service types of businesses occasionally maintain sub ledgers for projects, jobs, and processes.
Manufacturing Business
1. Raw Materials Inventory
Raw materials inventory is the total cost of all component parts currently in stock that have not
yet been used in work-in-process or finished goods production.
The Company purchased raw materials amounting 500,000 on account.
Journal Entry
Raw Materials Inventory 500,000
Accounts Payable 500,000
2. Work In Process Inventory
Work-in-process inventory is materials that have been partially converted through the
production process. These items are typically located in the production area.
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The Company placed 200,000 raw materials to produce the product.
Journal Entry
Work In Process Inventory 200,000
Raw Materials 200,000
3. Finished Goods Inventory
Finished goods are the items you have in inventory that are ready to be sold. The manufacturing
and production process is complete, and the items are complete. The finished goods inventory is the
amount of stock a company has to fulfill orders, ship to customers, and send to wholesale accounts.
The production was finished.
Journal Entry
Finished Goods Inventory 200,000
Work In Process Inventory 200,000
Merchandising Business
1. Merchandise Inventory
Merchandise inventory is goods that a company purchases and plans to resell to customers at a
higher price. Typically, retailers and wholesalers are the only businesses with merchandise inventory.
The Merchandising Company bought 1,000,000 of product from Manufacturing Company.
Journal Entry
Merchandise Inventory 1,000,000
Cash in Bank 1,000,000
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Common to All
1. Unused Supplies
These are supplies that are bought but not yet used.
The Company purchased 50,000 office supplies.
Journal Entry
Unused Supplies 50,000
Cash on Hand 50,000
PREPAID EXPENSES
Prepaid Expenses are assets created by the early payment of cash or assuming a liability. They expire
and are charged to expenses based on the passage of time, usage, or other factors. All Prepaid Expenses
could be recorded in a single account or separate accounts could be used for each different type.
1. Prepaid Insurance
Prepaid insurance is the portion of an insurance premium that has been paid in advance and has
not expired as of the date of the balance sheet.
On April 1, 2017, the Company pays 500,000 for twelve month insurance in advance.
Companys financial year ends on June 30, 2017.
April 1, 2017: To record the prepayment as a current asset:
Apr 1 Prepaid Insurance 500,000
June 30, 2017: To record insurance expense for three months [= 500,0003/12].
Jun 30 Insurance Expense 125,000
Prepaid Insurance 125,000
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2. Prepaid Rent
Prepaid rent is rent paid prior to the rental period to which it relates, so the tenant should record
on the balance sheet the amount of rent paid that has not yet been used.
On April 1, 2017, the Company pays 500,000 for twelve month rent in advance. Companys
financial year ends on June 30, 2017.
April 1, 2017: To record the prepayment as a current asset:
Apr 1 Prepaid Rent 500,000
June 30, 2017: To record rent expense for three months [= 500,0003/12].
Jun 30 Rent Expense 125,000
Prepaid Rent 125,000
3. Prepaid Advertising
A current asset that reports the amount paid for advertising that has not yet taken place. When
the advertising occurs the prepaid advertising is reduced and advertising expense is recorded.
On December 1, 2016, the Company entered into a 3-month advertisement contract with
Company B and paid 300,000. The company's advertisement will be played 3x a day for 3 months.
Journal Entries
Dec 1 Prepaid Advertising 300,000
Cash 300,000
On December 31, 2016, 1-month worth of advertising expense has already been used up.
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Dec 31 Advertising Expense 100,000
Prepaid Advertising 100,000
4. Prepaid Interest
Prepaid interest charges are charges due at closing for any daily interest that accrues on your
loan between the date you close on your mortgage loan and the period covered by your first monthly
mortgage payment.
On October 1, 2017, the Company borrowed 6,000,000 at 10% interest from a bank. As per
agreement, the principal is to be paid after 1 year while interest is payable monthly. On October 31,
2017, the company paid the first and second month interest payment. The journal entry to record
interest would be:
Oct 31 Prepaid Interest 50,000
Interest Expense 50,000
5. Other Prepaid Expenses
OTHER CURRENT ASSETS
This category includes other current assets that do not neatly fit into any of the other categories. The
amounts must be deemed collectible in a relatively short period of time (operating cycle).
1. Short Term Notes Receivable
Notes receivable are assets and represent amounts due to a business by a third party (usually a
customer). What distinguishes notes receivables from accounts receivable is that they are issued as a
promissory note. Short term notes receivable are due within one year from the balance sheet date and
classified under current assets in the balance sheet, long term notes receivable have terms exceeding
one year and are classified as long term assets in the balance sheet.
The Company sold supplies amounting to 50,000 Company B receiving 50% downpayment and
and notes with 10% interest receivable within 15 days.
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Journal Entry
Cash on Hand 25,000
Short-Term Notes Receivable 25,000
Sales 50,000
NONCURRENT ASSETS
A noncurrent asset is an asset that is not expected to be consumed within one year. If a company has
a high proportion of noncurrent to current assets, this can be an indicator of poor liquidity, since a large
amount of cash may be needed to support ongoing investments in noncash assets.
LONG-TERM INVESTMENTS
Investments that are intended to be held and not converted into cash for an extended period of time
(longer than the operating cycle). Reported at current market value by using an allowance for unrealized
market gains and losses.
1. Investment in Bonds
On Jan. 1, 2017: The Company purchased 2,500,000 in bonds of Corporation. The bonds have
a stated interest rate of 10% paid semi-annually and the bond matures in 5 years.
Journal Entries
Jan 1 Investment in Bonds 2,500,000
Cash on Hand 2,500,000
Semi-annual collections of interest:
Cash on Hand(2,500,000*10%*6/12) 125,000
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PROPERTY, PLANT, AND EQUIPMENT
Assets of a durable nature that are used to provide current and future economic benefits to the
business.
These accounts will normally have a sub ledger that contains a record for each parcel of land,
building, or piece of machinery and equipment along with depreciation calculations and amounts.
1. Land
Land, also called real property, is the earth on which the companys office buildings or
manufacturing facilities sit. The cost of the land plus any improvements the company has to make to
the land to use it for business operations reflects on the balance sheet at historic cost.
2. Buildings
Buildings is a non-current or long-term asset account which shows the cost of a building
(excluding the cost of the land). Buildings will be depreciated over their useful lives by debiting the
income statement account Depreciation Expense and crediting the balance sheet account
Accumulated Depreciation.
Example Transaction for Land and Building:
On Jan. 1, 2016, The Company purchased land costing 2,500,000 and buildings with
estimated 20 years life costing 20,000,000 . Paid 5,000,000 in cash and signed a mortgage for the
remaining 7,500,000.
Journal Entry
Jan 1 Land 2,500,000
Buildings 20,000,000
Mortgage Payable 17,500,000
To record___________________
3. Land Improvements
A land improvement is any type of alteration to the land to make it more usable. Improvements
have a limited life and can be depreciated unlike land. That is why land improvements are considered
a completely different asset than land. The money spent on improving land does not get added to the
original cost of the land. Instead, it gets treated as a completely separate asset purchase and is
depreciated over its useful life just like other fixed assets.
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On January 1, 2015: The Company intends to use the land as a parking lot, so it spends
10,000,000 to pave the land, and add walkways and fences. It estimates that the parking lot has a
useful life of 20 years.
Journal Entry
Jan 1 Land Improvements 10,000,000
4. Accumulated Depreciation-Land Improvements
Cumulative part of the cost of land improvements that has been recognized as expense.
On December 31, 2015: The Company depreciates the land improvements.
Journal Entry
Dec 31 Depreciation Expense-Land Improvements 500,000
Accumulated Dep.-Land Improvements 500,000
5. Accumulated Depreciation - Buildings (Contra Account)
This is a contra long-term asset account which is credited for the depreciation associated with
Buildings. Since it is a balance sheet account, the accumulated depreciation account balance does not
close at the end of each year; therefore, its credit balance will increase each year. However, its
balance cannot become greater than the cost of the buildings.
On Dec., 31,2016, the company depreciates the buildings purchased on Jan. 1, 2017.
Journal Entry
Dec 31 Depreciation Expense 1,000,000
Accumulated Dep.-Buildings 1,000,000
6. Building Improvements
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Building improvements are capital events that materially extend the useful life of a building
and/or increase the value of a building. Building improvements are capitalized and recorded as an
addition of value to the existing building if the expenditure meets the capitalization threshold.
On Jan. 1, 2017: The Company installed new elevators in the building amounting 10,000,000
with estimated useful life of 20 years.
Journal Entry
Jan 1 Building Improvements 10,000,000
7. Accumulated Depreciation - Building Improvements (Contra Account)
Cumulative part of the cost of the building improvements that has been recognized as expense.
On Dec.31, 2017: The Company depreciates the building improvements.
Dec 31 Dep. Expense-Building Improvements 500,000
Accum, Dep.-Building Improvements 500,000
8. Equipment
Equipment used by the business for it to be able to perform its main function. Equipment is a
non-current or long-term asset account which reports the cost of the equipment. Equipment will be
depreciated over its useful life by debiting the income statement account.
On January 1, 2017: The company purchased 600,000 equipment with estimated useful life of
10 years on account.
Journal Entry
Jan 1 Equipment 600,000
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9. Accumulated Depreciation - Equipment (Contra Account)
Cumulative part of the cost of the equipment that has been recognized as expense.
On January 31, 2017: The Company depreciates the equipment purchased on January 1, 2017.
Journal Entry
Jan 31 Depreciation Expense-Equipment 5,000
Accumulated Depreciation-Equipment 5,000
10. Office Equipment
A long-term asset account reported on the balance sheet under the heading of property, plant,
and equipment. Included in this account would be copiers, computers, printers, fax machines, etc.
On January 1, 2017: The Company purchased 10 units of copiers amounting 50,000 each with
estimated useful life of 5 years.
Journal Entry
Jan 1 Office Equipment 500,000
11. Accumulated Depreciation - Office Equipment (Contra Account)
Cumulative part of the cost of office equipment that has been recognized as expense.
On December 31, 2017: The Company depreciates the office supplies purchased on January 1,
2017.
Journal Entry
Dec 31 Depreciation Expense-Office Equipment 100,000
Accumulated Dep.-Office Equipment 100,000
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12. Vehicles
This account represents the vehicles owned by the business.
On January 1, 2017: The company bought motor vehicles amounting to 1,000,000 with 5
years estimated useful life.
Journal Entry
Jan 1 Vehicles 1,000,000
13. Accumulated Depreciation - Vehicles (Contra Account)
Cumulative part of the cost of vehicles that has been recognized as expense.
On December 31, 2017: The Company depreciate the vehicles purchased on January 1, 2017.
Journal Entry
Dec 31 Depreciation Expense-Vehicles 200,000
Accumulated Depreciation-Vehicles 200,000
To record____________________
14. Furniture and Fixtures
Furniture and fixtures are long term assets which are showed in assets side of balance sheet.
These assets are the part of fixed asset and every year, we charged depreciation on these assets.
Depreciation is calculated on their useful life and it is deducted from all furniture and fixture's book
value for showing written down value in balance sheet.
On January 1, 2017: The Company purchased tables and chairs amounting to 500,000 with
five years estimated useful life.
Journal Entry
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Jan 1 Furnitures and Fixtures 500,000
15. Accumulated Depreciation - Furniture and Fixtures (Contra Account)
Cumulative part of the cost of the furnitures and fixtures that has been recognized as expense.
On December 31, 2017: The Company depreciate the furnitures and fixtures purchased on
January 1, 2017.
Journal Entry
Dec 31 Depreciation Expense-Fur. and Fix. 100,000
Accumulated Dep.-Furnitures & Fixtures 100,000
16. Leasehold Improvements
A leasehold improvement consists of alterations made to rental premises in order to customize it

for the specific needs of a tenant. Leasehold improvements, such as painting, installing partitions,
changing the flooring, or putting in customized light fixtures can either be undertaken by landlords,
who may offer to do so to increase the marketability of their rental units, or by the tenants
themselves. While the useful economic life of most leasehold improvements is 5 to 10 years
On January 1, 2017: The Company spends 1,500,000 in leasehold improvements to a rental

property that it leases.
Journal Entry
Jan 1 Leasehold Improvements 1,500,000
17. Accumulated Amortization - Leasehold Improvements (Contra Account)
Accumulated amortization is a contra-asset account that reduces the net value of the leasehold
improvement.
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On December 31, 2017: The Company amortize the leasehold improvements made on January
1, 2017.
Journal Entry
Dec 31 Amortization Expense-Leasehold Improvements 150,000
Accum. Amortization-Leasehold Improvements 150,000
OTHER NONCURRENT ASSETS
All assets that are non-current and that do not fit neatly into any of the other categories.
INTANGIBLE ASSETS
An intangible asset is an asset that is not physical in nature. Corporate intellectual property, including
items such as patents, trademarks, copyrights and business methodologies, are intangible assets, as are
goodwill and brand recognition.
1. Patents
Patents grant a manufacturing and research company control over the use and sale of a specific
design in manufacturing process, etc.
On January 1, 2017: The Company purchased patent worth 2,000,000 and has a useful life of
10 years.
Journal Entry
Jan 1 Patents 2,000,000
2. Accumulated Amortization-Patents
Accumulated amortization is a contra-asset account that reduces the net value of the patents.
On December 31, 2017: The Company amortize the patents.
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Journal Entry
Dec 31 Amortization Expense-Patents 200,000
Accumulated Amortization-Patents 2,000,000
3. Copyrights
A copyright is an exclusive right granted by the federal government giving protection against
the illegal reproduction by others of the creators written works, designs, and literary productions.
On January 1, 2017: The Company is registered in a country that allows copyrights for 10 years,
after which any intellectual property is considered public. It recently purchased a copyright from
Company B for a best-seller at a cost of 100,000,000. It entitles the company to claim royalty for
the next 8 years.
Journal Entry
Jan 1 Copyrights 100,000,000
4. Accumulated Amortization-Copyrights
Accumulated amortization is the cumulative amount of amortization expense that has so far
been charged against copyrights.
On December 31, 2017: The Company amortize copyrights.
Journal Entry
Dec 31 Amortization Expense-Copyrights 12,500,000
Accumulated Amortization-Copyrights 12,500,000
LIABILITIES
Claims by creditors to the property (assets) of a business until they are paid. Liabilities are listed in
the order of their expected payment date (maturity). In other words, how soon they must be repaid.
29
Liability accounts are separated into current (short-term) liabilities and long-term liabilities. Short-Term
Liabilities generally are debts that must be repaid within 1 year from the date of the balance sheet. Long-
Term Liabilities are debts that must be paid more than 1 year from the date of the balance sheet.
CURRENT LIABILITIES
Current liabilities are the portion of obligations (amounts owed) due to be paid within the current
operating cycle (normally a year) and that normally require the use of existing current assets to satisfy the
debt.
1. Accounts Payable
This account refers to indebtedness that arise from purchase of goods, materials, supplies or
services and other transaction in the normal course of business operations
The Company bought 5,000 office supplies on account.
Journal Entry
Office Supplies 5,000
2. Notes Payable
These are obligations that are evidenced by promissory notes that are to be paid within 1 year.
The Company borrows 5,000,000 on March 1 for four months at 12% interest. The interest
amount for the four month period would be 5,000,000 * 0.12 * 4/12 = 200,000. The formula for
interest calculation is Interest = Principal times Rate times Time, with the time expressed in years or
a fraction of a year. Always take care in your calculation of time. In this example, interest needs to
be calculated for March, as well as April, May, and June -- because the money is borrowed on March
1.
Journal Entry
Mar 1 Cash in Bank 5,000,000
Notes Payable 5,000,000
3. Income Tax Payable
30
These are current income tax obligation of the company payable to the government.
If the Company has 10,000,000 of before-tax profits, and the federal government imposes a
35% income tax, then the Company should record a debit to the income tax expense account of and
a credit to the income tax payable account of 3,500,000. When the Company later pays the tax, it
debits the income tax payable account for 3,500,000, and credits the cash account for 3,500,000.
Journal Entry
Income Tax Expense 3,500,000
Income Tax Payable 3,500,000
4. Salaries Payable
Salaries payable is a liability account that contains the amounts of any salaries owed to
employees, which have not yet been paid to them. The balance in the account represents the salaries
liability of a business as of the balance sheet date.
On December 31, the second half of monthly salaries of the employees amounting 150,000 were
not yet paid.
Dec 31 Salaries Expense 150,000
Salaries Payable 150,000
5. Rent Payable
Rent Payable is used by the tenant to report the amount of rent that the tenant owes for rent but
has not been paid as of the balance sheet date.
On Dec. 31:The monthly office rental amounting to 100,000 were not yet paid.
Journal Entry
Dec 31 Rent Expense 100,000
Rent Payable 100,000
31
6. Utilities Payable
A current liability account that reports the amounts owed to the utility companies for electricity,
gas, water, phone as of the date of the balance sheet.
On Dec. 31, the Company received the monthly bill of light and water amounting to 50,000.
Journal Entry
Dec 31 Utilities Expense 50,000
Utilities Payable 50,000
7. Interest Payable
Interest payable is a current liability account that is used to report the amount of interest that has
been incurred but has not yet been paid as of the date of the balance sheet.
If the company closes its books monthly, an adjustment would be made at the end of each month
for interest accrued. For example, at the end of March, one month has elapsed, and 50,000 of
interest expense ( 5,000,000 * .12 * 1/12) is accrued:
Journal Entry
Mar 31 Interest Expense 50,000
Interest Payable 50,000
8. Telecommunications Payable
Telecommunications payable is a current liability account that is used to report the amount of
telecommunications services such as telephone and internet that has been incurred but has not yet
been paid as of the date of the balance sheet.
On December 31: The Company received the bill of telephone and internet service amounting to
50,000.
32
Journal Entry
Dec 31 Telecommunications Expense 50,000
Telecommunications Payable 50,000
9. Unearned Revenues
This account represents advanced payments from customers which requires settlement through
delivery of goods or services in the future.
The Company made 100,000 advance collections from customers.
Journal Entry
Dec 31 Cash on Hand 100,000
Unearned Revenue 100,000
10. Other Current Liabilities
These are any obligation that is to be paid within 1 year.
NON-CURRENT LIABILITIES
Long term liability accounts are the portions of debts with due dates greater than a year or the
operating cycle. These are obligations that are not expected to be paid within the current operating cycle.
1. Long-Term Notes Payable
These are obligations evidenced by promissory notes which are to be paid beyond 1 year.
The Company acquired vehicles amounting 10,000,000 paying 20% downpayment and
issuing notes with 10% annual interest payable in 2 years.
Vehicles 10,000,000
Notes Payable 8,000,000
33
2. Bonds Payable
These are liabilities supported by a formal promise to pay a specified sum of money at a future
date and pay periodic interests. A bond has a stated face value which is usually the final amount to be
paid. Bonds can be traded in bond markets.
For serial bonds (bonds paid in installments), the portion which is to be paid within one year is
considered as a current liability; the rest are non-current. The same rule applies to other long-term
obligations paid in installments.
On January 1, the Company issued 100,000, 500 face value bonds carrying a coupon rate of
8% payable semiannually. The term of the bonds is 20 years. Journalize issuance of bonds.
Journal Entry
Bonds Payable 50,000,000
3. Mortgage Payable
These are long-term obligation to a bank or other financial institution, secured by real properties
of the business.
The Company obtains a fifteenyear 7,500,000 mortgage with a 7.5% interest rate and should
paid monthly. The borrowing and receipt of cash is recorded with an increase (debit) to cash and an
increase (credit) to mortgage payable.
Mortgage Payable 7,500,000
To record____________________
4. Other Non-Current Liabilities
Theses are any obligation that is to be paid beyond 1 year.
34
EQUITY
The owner's rights or claims to the property (assets) of the business. The accounts set up in this
section will depend on the legal structure of your business.
These accounts report the Owner's Capital Invested and the Accumulated Profits or Losses for the
business since it began. Owner sub ledgers may also be maintained to keep up with and track shares and
interests and amounts owed individual owners.
Sole Proprietorship
1. Owner's Capital
Owner's Capital, also called owner's equity, is the equity account that shows the owners' stake in
the business.
The Owner invested 1,000,000 cash to the business.
Journal Entry
Owners Capital 1,000,000
2. Owner's Drawing
These are withdrawals of a sole proprietorship's cash or other assets for the personal use of the
owner. Each of the owner's draws of cash will be recorded with a credit to Cash and a debit to the
owner's drawing account.
The Owner withdraws 1 5,000 for personal use.
Journal Entry
Owners Drawing 15,000
Cash on Hand 15,000
Partnership or Limited Liability Company
1. Partner's or Member's Capital
35
The partnership capital account is an equity account in the accounting records of a partnership.
It contains the following types of transactions: Initial and subsequent contributions by partners to the
partnership, in the form of either cash or the market value of other types of assets.
Partner A, Partner B and Partner C invested 500,000, 1,000,000 and 750,000 respectively
to put up the business.
Journal Entry
Cash 2,250,000
Partner As Capital 500,000
Partner Bs Capital 1,000,000
Partner Cs Capital 750,000
2. Partner's or Member's Drawing
These are withdrawals of a sole partners cash or other assets for their personal. Each of the
partner's draws of cash will be recorded with a credit to Cash and a debit to the partner's drawing
account.
Partner B withdraws 20,000 for personal use.
Journal Entry
Partner Bs Drawing 20,000
Cash 20,000
Corporation
1. Common Stock
Common stock is an equity account that records the amount of money investors initially
contributed to the corporation for their ownership in the company. This is usually recorded at the par
value of the stock.
36
On January 1, 2016, several members of the Abc family invest a total of 2,000,000 to start
ABC Company. In exchange, the corporation issues a total of 1,000 shares of common stock. (The
stock has no par value and no stated value.)
Journal Entry
Jan 1 Cash 2,000,000
Common Stock 2,000,000
2. Paid-In Capital
Paid-in capital, also called paid-in capital in excess of par, is the excess dollar amount above par
value that shareholders contribute to the company.
The par value of ABC Company is 1000 per share and you buy 100 shares at 1,250 per share,
additional paid-in capital is 25,000.
Journal Entry
Cash 125,000
Common Stock 100,000
Paid-In Capital 25,000
3. Treasury Stock
Sometimes corporations want to downsize or eliminate investors by purchasing company from

shareholders. These shares that are purchased by the company are called treasury stock. This stock
has a debit balance and reduces the equity of the company.
The Company purchases 10,000 of its stock from one of its stockholders. The stock will be
held by the corporation as Treasury Stock. The purchase of its own stock for cash meant that ABC
Companys assets decrease by 10,000 and its stockholders' equity decreases by 10,000.
Treasury Stock 10,000
Cash 10,000
37
4. Retained Earnings
Companies that make profits rarely distribute all of their profits to shareholders in the form of
dividends. Most companies keep a significant share of their profits to reinvest and help run the
company operations. These profits that are kept within the company are called retained earnings.
On December 31, 2016, it has cleared 5,000,000 but has also paid 1,000,000 in dividends to
shareholders. Retained earnings is 4,000,000 ( 5,000,000 1,000,000).
Journal Entry
Dec 31 Net Income 5,000,000
Dividends 1,000,000
Retained Earnings 4,000,000
REVENUES
1. Service Revenue
The revenue earned from rendering services. Other account titles may be used depending on the
industry of the business, such as Professional Fees for professional practice and Tuition Fees for
schools.
The Company received 50,000 for services rendered.
Journal Entry
Cash 50,000
Service Income 50,000
2. Sales
The revenue from selling goods to customers. It is the principal revenue account of
merchandising and manufacturing companies.
38
The business is a retailer that sells electronics and computer parts. On January 1, it sold a
computer monitor to a customer for 50,000. The business purchased this monitor from the
manufacturer for 37,500 three months ago.
Journal Entry
Jan 1 Cash 50,000
Cost of Goods Sold 37,500
Sales 50,000
Inventory 37,500
3. Sales Discounts
This is a contra-revenue account that represents reduction in the amount paid by customers for
early payment. It is shown in the income statement as a deduction to Sales.
On Jan.1: The Company sold merchandise to DEF for a total sales price of 500,000. The
company is given 60 days to pay the amount. However, DEF will be granted 5% discount if it pays
within 10 days.
If the customer paid before the discount period has expired, the journal entry to record the
collection would simply be:
Journal Entry
Jan 10 Cash 475,000
Sales Discount 25,000
4. Sales Returns and Allowances
This also a contra-revenue account and therefore shown as a deduction to Sales. Sales return
occurs when there is actual return of a defective item. Sales allowance happens when the customer is
willing to keep the item with a reduction in its selling price.
On January 1, it sold a computer monitor to a customer for 50,000. On January 12, the
customer returned the computer monitor.
39
Journal Entry
Jan 12 Sales Returns and Allowances 50,000
Cash 50,000
5. Rent Income
This is earned from leasing out commercial spaces such as office space, stalls, booths,
apartments, condominiums, etc.
On December 31, 2017, the Company collected 100,000 for renting out a part of its office
building from December 1 to December 31.
Journal Entry
Dec 31 Cash 100,000
Rent Income 100,000
6. Interest Income
This is revenue earned from lending money.
On December 31, 2017, the Company received the monthly interest on its bank account. The
interest amounted to 10,000 for the month of December.
Journal Entry
Dec 31 Cash in Bank 10,000
7. Commission Income
This is earned by brokers and sales agents in making a sale or closing a deal.
40
The Company, a real estate brokerage firm, closed a deal worth 10,000,000 and received 5%
commission.
Journal Entry
Commission Income 500,000
EXPENSE
1. Cost of Sales
It was also known as Cost of Goods Sold, it represents the value of the items sold to customers
before any mark-up. In merchandising companies, cost of sales is normally the purchase price of the
goods sold, including incidental costs. In manufacturing businesses, it is the total production cost of
the units sold. Service companies do not have cost of sales.
The Company has a beginning balance in its inventory asset account of 25,000,000. It buys
22,500,000 of materials from suppliers during the month. At month-end, it counts its ending
inventory and determines that there is 10,000,000 of inventory on hand.
Cost of Goods Sold Expense 37,500,000
Purchases 22,500,000
Inventory 15,000,000
2. Purchases
The cost of merchandise acquired that are to be sold in the normal course of business. At the end
of the period, this account is closed to Cost of Sales.
The Company purchased 1,000 units of merchandise at 1,500 per unit on account.
Purchases 1,500,000
Accounts Payable 1,500,000
41
3. Freight in
If the business shoulders the cost of transporting the goods it purchased, such cost is recorded as
Freight-in. This account is also closed to Cost of Sales at the end of the period.
The Company pays a shipping company 5,000 for delivering the merchandise from Company
B.
Journal Entry
Freight-in 5,000
Cash 5,000
4. Advertising Expense
The costs of promoting the business such as those incurred in newspaper publications, television
and radio broadcasts, billboards, flyers, etc.
The company paid 5,000 for advertising.
Journal Entry
Advertising Expense 5,000
Cash on Hand 5,000
5. Bank Service Charge
The costs charged by banks for the use of their services.
The bank deducted 1,750 from the Companys checking account.
Bank Service Charge 1,750
Cash in Bank 1,750
42
6. Delivery Expense
This represents cost of gas, oil, courier fees, and other costs incurred by the business in
transporting the goods sold to the customers. Delivery expense is also known as Freight-out.
The Company incurred and paid 2,500 for gas and oil used in transporting furniture products
to its customers.
Journal Entry
Delivery Expense 2,500
Cash on Hand 2,500
7. Depreciation Expense
Depreciation expense is the allocated portion of the cost of a company's fixed assets that is
appropriate for the accounting period indicated on the company's income statement.
Depreciation Expense-Land Improvements
On December 31, 2015: The Company depreciates the land improvements.
Journal Entry
Dec 31 Depreciation Expense-Land Improvements 500,000
Accumulated Dep.-Land Improvements 500,000
Depreciation Expense - Buildings
On Dec., 31,2016, the company depreciates the buildings purchased on Jan. 1, 2017.
Journal Entry
Dec 31 Depreciation Expense-Buildings 1,000,000
Accumulated Dep.-Buildings 1,000,000
43
Depreciation - Building Improvements
On Dec.31, 2017: The Company depreciates the building improvements.
Journal Entry
Dec 31 Dep. Expense-Building Improvements 500,000
Accum, Dep.-Building Improvements 500,000
Depreciation Expense - Equipment
On January 31, 2017: The Company depreciates the equipment purchased on January 1, 2017.
Journal Entry
Jan 31 Depreciation Expense-Equipment 5,000
Accumulated Depreciation-Equipment 5,000
Depreciation Expense- Office Equipment
On December 31, 2017: The Company depreciates the office supplies purchased on January 1,
2017.
Journal Entry
Dec 31 Depreciation Expense-Office Equipment 100,000
Accumulated Dep.-Office Equipment 100,000
Depreciation Expense- Vehicles
On December 31, 2017: The Company depreciate the vehicles purchased on January 1, 2017.
44
Journal Entry
Dec 31 Depreciation Expense-Vehicles 200,000
Accumulated Depreciation-Vehicles 200,000
Depreciation Expense- Furniture and Fixtures
On December 31, 2017: The Company depreciate the furnitures and fixtures purchased on
January 1, 2017.
Journal Entry
Dec 31 Depreciation Expense-Fur. and Fix. 100,000
Accumulated Dep.-Furnitures & Fixtures 100,000
8. Amortization Expense-Intangible Assets
The allocation to expense of the cost of an intangible asset such as a patent or goodwill.
Amortization Expense- Leasehold Improvements
On December 31, 2017: The Company amortize the leasehold improvements made on January
1, 2017.
Journal Entry
Dec 31 Amortization Expense-Leasehold Improvements 150,000
Accum. Amortization-Leasehold Improvements 150,000
Amortization Expense-Patents
On December 31, 2017: The Company amortize the patents.
45
Journal Entry
Dec 31 Amortization Expense-Patents 200,000
Accumulated Amortization-Patents 2,000,000
Amortization Expense -Copyrights
On December 31, 2017: The Company amortize copyrights.
Journal Entry
Dec 31 Amortization Expense-Copyrights 12,500,000
Accumulated Amortization-Copyrights 12,500,000
9. Insurance Expense
The insurance premiums paid or payable to an insurance company who accepts to guarantee the
business against losses from a specified event.
The Company paid 500,000 for the health insurance of the employees.
Journal Entry
Insurance Expense 500,000
Cash 500,000
10. Interest Expense
The cost of borrowing money. Interest expense may be paid monthly, annually, or upon
payment of the principal. It may also be paid in advance (deducted from the amount borrowed).
On October 1, 2017, the Company borrowed 6,000,000 at 10% interest from a bank. As per
agreement, the principal is to be paid after 1 year while interest is payable monthly. On October 31,
2017, the company paid the first and second month interest payment.
46
Journal Entry
Oct 31 Prepaid Interest 50,000
Interest Expense 50,000
11. Rent Expense
The cost paid or to be paid to a lessor for the right to use a commercial property such as an
office space, a storeroom, a building, etc.
At the end of every month, the Company pays 500,000 to Company B for the use of the
building.
Journal Entry
Rent Expense 500,000
12. Representation Expense
The entertainment costs for customers, employees and owners. It is often coupled with traveling,
hence the account title Travel and Representation Expense.
The Company bought gas and oil amounting to 5,000.
Journal Entry
Representation Expense 5,000
Cash on Hand 5,000
13. Salaries Expense
The compensation to employees for their services to the company.
47
The Company paid 500,000 for the monthly salaries of employees.
Journal Entry
Salaries Expense 500,000
14. Supplies Expense
The cost of supplies (ball pens, ink, paper, spare parts, etc.) used by the business. Specific
accounts may be in place such as Office Supplies Expense, Store Supplies Expense, and Service
Supplies Expense.
The Company used 20,000 office supplies.
Journal Entry
Supplies Expense 20,000
Office Supplies 20,000
15. Licenses and Permits
The business permits, registration, and licensing fees paid to the government.
The Company paid 10,000 for licenses and permits.
Journal Entry
Licenses and Permits 10,000
Cash on Hand 10,000
16. Telecommunications Expense
The cost of using communication and telephony technologies such as mobile phones, land lines,
and internet.
48
The Company received and paid the bill for telephone, land line and internet connection
amounting 20,000.
Journal Entry
Telecommunications Expense 20,000
Cash on Hand 20,000
17. Training and Development
The costs for the enhancement of employee skills.
The Company applied the employees in a training and development program and paid 100,000.
Journal Entry
Training and Development 100,000
18. Utilities Expense
These are water and electricity costs paid or payable to utility companies.
The Company received and paid water and electricity bills for the month amounting 20,000.
Journal Entry
Utilities Expense 20,000
Cash on Hand 20,000
49

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Interworld Colleges Foundation Inc.

Burgos St., Paniqui, Tarlac

In partial fulfillment of the subject requirements in Fundamentals of Accountancy, Business and

II. Elements of Financial Statements

III. Chart of Accounts

ii. Liability Accounts

iii. Equity Accounts

iv. Revenue Accounts

IV. Account Titles Descriptions, Example Transactions and Journal Entries

ii. Liability Accounts

iii. Equity Accounts

iv. Revenue Accounts

Double-entry Bookkeeping and Luca Pacioli

Statement of Financial Position or Balance Sheet

Statement of Financial Performance, or Income Statement

Statement of Change in Equity

Statement of Cash flow

Noted to Financial Statements.

CASH AND CASH EQUIVALENTS

Petty Cash Fund

Other Short Term Investments

Allowance For Bad Debts (Contra Account)

Raw Materials Inventory

Work In Process Inventory

Finished Goods Inventory

Other Prepaid Expenses

Short Term Notes Receivable

PROPERTY, PLANT, AND EQUIPMENT

Accumulated Depreciation-Land Improvements

Accumulated Depreciation - Buildings (Contra Account)

Accumulated Depreciation - Building Improvements (Contra Account)

Accumulated Depreciation - Equipment (Contra Account)

Accumulated Depreciation - Office Equipment (Contra Account)

Accumulated Depreciation - Vehicles (Contra Account)

Furniture and Fixtures

Accumulated Depreciation - Furniture and Fixtures (Contra Account)

Accumulated Amortization - Leasehold Improvements (Contra Account)

Income Tax Payable

Other Current Liabilities

Long-Term Notes Payable

Other Non-Current Liabilities

Partnership or Limited Liability Company

Partner's or Member's Capital

Partner's or Member's Drawing

Sales Returns and Allowances

Bank Service Charge

Depreciation Expense - Buildings

Depreciation - Building Improvements

Depreciation Expense - Equipment

Depreciation Expense- Office Equipment

Depreciation Expense- Vehicles

Depreciation Expense- Furniture and Fixtures

Amortization Expense- Leasehold Improvements

Amortization Expense -Copyrights

Licenses and Permits

Training and Development

CASH AND CASH EQUIVALENTS

The owner invested 100,000 to the business.

Cash on Hand 100,000

Owners Capital 100,000

2. Petty Cash Fund

The Company created a petty cash fund of 50,000.

Petty Cash Fund 50,000

Cash in Bank 50,000

Cash on Hand(2,500,00010%6/12) 125,000