Cristine C.

De Mesa

BSPA 1D

ACCOUNTS TITLE

Asset Accounts

Assets include the things or resources that a company owns, that were acquired in a
transaction, and have a future value that can be measured. Assets also include some costs that
are prepaid or deferred and will become expenses as the costs are used up over time.

The following are brief descriptions of some common asset accounts.

Cash - includes currency, coins, checking account balances, petty cash funds, and customers'
checks that have not yet been deposited. A company is likely to have a separate general ledger
account for each checking account, petty cash fund, etc. but will combine the amounts and will
report the total as Cash (or Cash and Cash Equivalents) on the balance sheet.
Short-term Investments - Short-term or temporary investments may include certificates of
deposit, bonds, notes, etc. that will mature in less than one year. It may also include
investments in the common or preferred stock of another corporation if the stock can be easily
sold on a stock exchange.
Accounts Receivable - is a right to receive an amount as the result of delivering goods or
services on credit. Under the accrual method of accounting, Accounts Receivable is debited at
the time of a credit sale. Later, when the customer pays the amount owed, the company will
credit Accounts Receivable (and will debit Cash).
Allowance for Doubtful Accounts - is a contra-asset account since its balance is intended to
be a credit balance (or a zero balance). When the balance in this account is combined with the
balance in Accounts Receivable, the resulting amount is known as the net realizable value of
the receivables. The Allowance for Doubtful Accounts is used under the allowance method of
reporting bad debts expense.
Accrued Revenues/Receivables - Under the accrual method of accounting, revenues are to
be reported when goods or services have been delivered even if a sales invoice has not been
generated. This account will report the amounts that a company has a right to receive but the
sales invoices have yet to be prepared or entered in Accounts Receivable.
Prepaid Expenses - These are future expenses that have already been paid. The amounts
appear as assets until the costs have been used up or expire.
Inventory - is the cost of goods that have been purchased or manufactured and have not yet
been sold.
Supplies - Supplies could be office supplies, manufacturing supplies, packaging supplies or
other supplies that are on hand. The cost of the supplies that remain on hand is reported as an
asset.
Long-term Investments - This account or asset category will be reported on the balance sheet
immediately following current assets. It may include investments in the common stock, preferred
stock, and bonds of another corporation. It also includes real estate being held for sale and also
the money that is restricted for a long-term purpose such as a building project or the repurchase
of bonds payable. The cash surrender value of a life insurance policy owned by a company is
also reported under this asset heading.
Land - This account represents the property portion of the balance sheet heading "Property,
plant and equipment." It reports the cost of land used in a business. Since land is assumed to
last indefinitely, the cost of land is not depreciated.
Buildings - This account will report the cost of the building used in the business. The cost of
buildings will be depreciated over their useful lives.
Equipment - This account reports the cost of the machinery and equipment used in the
business. The cost of equipment will be depreciated over the equipment's useful life.
Vehicles - This account reports the cost of trucks, trailers, and automobiles used in the
business. The cost of vehicles is to be depreciated over the vehicles' useful lives.
Furniture and Fixtures - This account reports the cost of desks, chairs, shelving, etc. that are
used in the business. The cost of furniture and fixtures is to be depreciated over the useful lives.
Accumulated Depreciation - is known as a contra asset account because it has a credit
balance instead of a debit balance that is typical for asset accounts. Whenever Depreciation
Expense is debited for the periodic depreciation of the buildings, equipment, vehicles, etc. the
account Accumulated Depreciation is credited. The credit balance in Accumulated Depreciation
will continue to grow until an asset is sold or scrapped. However, the maximum amount of the
credit balance is the cost of the asset(s).
Liabilities Accounts
Liabilities are obligations of the company; they are amounts owed to creditors for a past
transaction and they usually have the word "payable" in their account title. Along with owner's
equity, liabilities can be thought of as a source of the company's assets. They can also be
thought of as a claim against a company's assets.
Examples of liability accounts include:

Notes Payable - The amount of principal due on a formal written promise to pay. Loans from
banks are included in this account.
Accounts Payable - This current liability account will show the amount a company owes for
items or services purchased on credit and for which there was not a promissory note. This
account is often referred to as trade payables (as opposed to notes payable, interest payable,
etc.)
Salaries Payable - The current liability account which reports the amount of salaries earned by
a company's employees, but which have not yet been paid by the company.
Wages Payable - A current liability account that reports the amounts owed to employees for
hours worked but not yet paid as of the date of the balance sheet.
Interest Payable - This current liability account reports the amount of interest the company
owes as of the date of the balance sheet. (Future interest is not recorded as a liability.)
Other Accrued Expenses Payable - Obligations that a company has incurred, but have not yet
been routinely recorded in Accounts Payable. For example, if the interest on a bank loan is paid
on the 10th of each month, then on the last day of each month approximately 20 days of interest
expense is an accrued expense payable.
Income Taxes Payable - A current liability account which reflects the amount of income taxes
currently due to the federal, state, and local governments.
Customer Deposits - A liability account on the books of a company receiving cash in advance
of delivering goods or services to the customer. The entry on the books of the company at the
time the money is received in advance is a debit to Cash and a credit to Customer Deposits.
Warranty Liability - A liability account that reports the estimated amount that a company will
have to spend to repair or replace a product during its warranty period. The liability amount is
recorded at the time of the sale. (It is also the time when the expense is reported.) The liability
will be reduced by the actual expenditures to repair or replace the product. Warranty Payable or
Warranty Liability is considered to be a contingent liability that is both probable and capable of
being estimated.
Lawsuits Payable - A liability account that reports the amount payable as of the balance sheet
date. For the account to show a balance, a loss/obligation must be probable and the amount
can be estimated. If the lawsuit is remote or only possible, it will not be shown as a liability. If the
lawsuit is possible but not probable, it should be disclosed in the notes.
Unearned Revenues - A liability account that reports amounts received in advance of providing
goods or services. When the goods or services are provided, this account balance is decreased
and a revenue account is increased.
Bonds Payable - Generally a long term liability account containing the face amount, par
amount, or maturity amount of the bonds issued by a company that are outstanding as of the
balance sheet date.
Liability accounts will normally have credit balances.

Contra Liabilities are liability accounts with debit balances. (A debit balance in a liability
account is contrary or contra to a liability account's usual credit balance.) Examples of contra
liability accounts include:
Discount on Notes Payable - A contra liability account arising when the proceeds of a note
payable is less than the face amount of the note. The debit balance in this account will be
amortized to interest expense over the life of the note.
Discount on Bonds Payable - A contra liability account that reports the amount of unamortized
discount associated with bonds that are outstanding. The discount on bonds payable originates
when bonds are issued for less than the bond's face or maturity amount. The debit balance in
this account will be amortized to bond interest expense over the life of the bonds and results in
more interest expense than interest paid.
Bond Issue Costs - Bond Issue Costs is a contra liability accounts reported along with Bonds
Payable. Bond Issue Costs include the professional fees and registration fees associated with
the issuance of bonds. The amount in the account Bond Issue Costs will be amortized
(systematically written off) to interest expense over the life of the bonds.
Debt Issue Costs - Debt issue costs refers to the expenses associated with issuing bonds or
notes. These expenses can include underwriting charges, printing costs, and legal and
registration fees. Accounting rules require companies to amortize these costs over the term of
the associated debt.
Classifications Of Liabilities On The Balance Sheet
Liability and contra liability accounts are usually classified (put into distinct groupings,
categories, or classifications) on the balance sheet. The liability classifications and their order
of appearance on the balance sheet are:
Current Liabilities - Obligations due within one year of the balance sheet date. (If a company's
operating cycle is longer than one year, an item is a current liability if it is due within the
operating cycle.) Another condition is that the item will use cash or it will create another current
liability. (This means that if a bond payable is due within one year of the balance sheet date, but
the bond will be retired by a bond sinking fund (a long-term restricted asset) the bond will not be
reported as a current liability.)
Long Term Liabilities - Obligations of the enterprise that are not payable within one year of the
balance sheet date. Two examples are bonds payable and long term notes payable.
Owner's (Stockholders') Equity

along with liabilities can be thought of as a source of the company's assets.

"Owner's Equity" are the words used on the balance sheet when the company is a sole
proprietorship. If the company is a corporation, the words Stockholders' Equity are used instead
of Owner's Equity.
Common Stock - The type of stock that is present at every corporation. (Some corporations
have preferred stock in addition to their common stock.) Shares of common stock provide
evidence of ownership in a corporation. Holders of common stock elect the corporation's
directors and share in the distribution of profits of the company via dividends. If the corporation
were to liquidate, the secured lenders would be paid first, followed by unsecured lenders,
preferred stockholders (if any), and lastly the common stockholders.
Preferred Stock - A class of corporation stock that provides for preferential treatment of
dividends: preferred stockholders will be paid dividends before the common stockholders
receive dividends. In exchange for the preferential treatment of dividends, preferred
shareholders usually do not share in the corporation's earnings and instead receive only their
fixed dividend.
Paid in Capital from Treasury Stock - A stockholders' equity account with a credit balance.
The credit balance results when a corporation sells some of its treasury stock for an amount that
exceeds the corporation's cost of the treasury stock that was sold.
Paid in Capital in Excess of Par Value - The stockholders' equity account that represents the
amount paid to a corporation for its common stock that was in excess of the common stock's par
value. This account is sometimes referred to as the premium on common stock (The par value
of common stock is recorded in a separate stockholder's equity account.)
The stockholders' equity account that represents the amount paid to a corporation for its
preferred stock that was in excess of the preferred stock's par value. This account is sometimes
referred to as the premium on preferred stock (The par value of preferred stock is recorded in
a separate stockholder's equity account.)
Retained Earnings - A stockholders' equity account that generally reports the net income of a
corporation from its inception until the balance sheet date less the dividends declared from its
inception to the date of the balance sheet.
Accumulated Other Comprehensive Income - A separate line within stockholders' equity that
reports the corporation's cumulative income that has not been reported as part of net income on
the corporation's income statement. The items that would be included in this line involve the
income or loss involving foreign currency transactions, hedges, and pension.

Revenue Accounts
Fees earned from providing services and the amounts of merchandise sold. Under the accrual
basis of accounting, revenues are recorded at the time of delivering the service or the
merchandise, even if cash is not received at the time of delivery. Often the term income is used
instead of revenues.
 Examples of revenue accounts include:
Sales, Service Revenues, Fees Earned, Interest Revenue, Interest Income. Revenue accounts
are credited when services are performed/billed and therefore will usually have credit balances.
At the time that a revenue account is credited, the account debited might be Cash, Accounts
Receivable, or Unearned Revenue depending if cash was received at the time of the service, if
the customer was billed at the time of the service and will pay later, or if the customer had paid
in advance of the service being performed.

Service sales - This account is used by organizations that provide services to their customers,
such as consulting services or tax advice. This type of revenue is typically billed on an hourly basis
to customers, or is a fixed fee in exchange for services (such as a $100 flat fee to repair a washing
machine).
Product sales - This account is used by companies that sell goods to their customers, such as
automobiles or consumer electronics. This type of revenue is typically billed based on a flat fee per
unit shipped.

These non-operating revenue accounts may be stated lower in the income statement, to keep them
from being confused with the main operating revenue accounts. In addition to the preceding list of major
revenue accounts, there are also several associated contra revenue accounts. These accounts are
designed to separately store deductions from revenue. The most common contra revenue accounts are:
Sales discounts - This account stores any discounts given to a customer in exchange for early
payment.
Sales allowances - This account stores any discounts given to customers from the regular price of an
invoice.
Sales returns - This account stores the reserve for returned products that are expected to be received
from customers.

Expense Accounts
Costs that are matched with revenues on the income statement. Expenses associated with the main activity of
the business are referred to as operating expenses. Expenses associated with a peripheral activity are non-
operating or other expenses.
Examples of revenue accounts include:

Cost of Sales - 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.
Purchases - 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.
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.
Advertising Expense - costs of promoting the business such as those incurred in newspaper
publications, television and radio broadcasts, billboards, flyers, etc.
Bank Service Charge - costs charged by banks for the use of their services
Delivery Expense - 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.
Depreciation Expense - refers to the portion of the cost of fixed assets (property, plant, and
equipment) used for the operations of the period reported
Insurance Expense - insurance premiums paid or payable to an insurance company who
accepts to guarantee the business against losses from a specified event
Interest Expense - cost of borrowing money
Rent Expense - 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.
Repairs and Maintenance - cost of repairing and servicing certain assets such as building
facilities, machinery, and equipment
Representation Expense - entertainment costs for customers, employees and owners. It is
often coupled with traveling, hence the account title Travel and Representation Expense.
Salaries Expense - compensation to employees for their services to the company
Supplies Expense - 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.
License Fees and Taxes - business taxes, registration, and licensing fees paid to the
government
Telecommunications Expense - cost of using communication and telephony technologies
such as mobile phones, land lines, and internet
Training and Development - costs for the enhancement of employee skills
Utilities Expense - water and electricity costs paid or payable to utility companies
And others, such as Accounting or Bookkeeping Fees, Legal and Attorney Fees, etc. Expenses
are deducted from revenues to arrive at the company's net income.
Cristine C. De Mesa

BSPA 1D

Asset Accounts

Liability Accounts

Owner’s Equity Accounts

Operating Expense Accounts

Non-Operating Revenues and Expenses, Gains, and Losses