FIVE ACCOUNTING ELEMENTS process or in rendering

services.
Real Accounts Nominal Accounts
6. Prepaid Supplies – various
1. Assets 4. Expense supplies which have been
2. Liabilities 5. Revenue/income bought for use in the office but
3. Capital/owner’s equity are still unused.
b. NONCURRENT ASSETS – these are
REAL ACCOUNTS assets that do not meet the criteria
of current asset. Generally, they
ASSETS – are resources or things of value
include tangible, intangible,
owned by the business. It is recorded
operating and financial assets pf a
normally at the debit balance.
long-term nature.
a. CURRENT ASSETS – are those 1. Land – the site owned by the
assets which can be reasonably business on which the business
converted into cash within a short building is constructed. This
period of time. plant asset is not subject to
1. Cash - any item on hand with depreciation. All other plant
monetary value that a bank will assets are subject to
accept for deposit and all depreciation.
amounts currently deposit the 2. Building – the structure owned
bank in the name of business. by the business used in the
2. Accounts Receivable – the operation of business.
amounts collectible on open 3. Furniture and Fixture – long-
accounts of the customers. lived items used by the business
3. Notes Receivable – a including store furnishings, such
promissory notes received by as showcases, counters,
the business from its debtors or containers, display racks, as
customers. A promissory note is well as furniture used for office
written promise to pay certain purposes such as desks, chairs
amount on specified a and cabinets.
determined date. 4. Equipment – consists of what
4. Accrued Interest Receivable – generally might be called
the interest earned on note machinery used in the business
receivable but not yet received such as computers, delivery
in cash. equipment and many others.
5. Inventories – asset held for sale
in the normal operation of the
business in the process of
production for sale, or in the
form of materials or supplies to
be consumed in the production
LIABILITIES – are present obligations to OWNER’S EQUITY – the residual amount
pay cash or cash equivalents by an entity. after deducting liabilities from assets. It
In other words, they represent claims comprises the capital contribution and
against the assets of the business. It is withdrawals by the owner. It is increased
recorded normally at the credit balance. by capital contribution of the owner and
net income of the business and decreased
a. CURRENT LIABILITIES – liabilities that
by the owner’s withdrawals and net losses
is expected to be settled in the
of the business.
normal course of the enterprise’s
operating cycle and within twelve - Owner’s equity is described as
months of the statement of financial owner’s capital (sole
position date. proprietorship), partner’s capital
1. Accounts Payable – an obligation (partnership), and shareholder’s
or debt to creditors for money equity (corporation). The normal
borrowed or merchandise and balance of these accounts is
other assets bought on credit. credit balance.
Examples are obligations arising a. Drawing – is a temporary account
from purchase on account. used to record initially the amount
2. Notes Payable – a promissory taken by the owner from the
note issued by the business to its business. This is closed to the
creditors for money borrowed or capital account of the owner at the
merchandise and other assets end of the accounting period.
bought on credit.
NOMINAL ACCOUNTS
3. Accrued Interest Payable – the
interest incurred in the current REVENUE – represent the earnings of the
period but not yet paid. business from sales of goods or service
4. SSS Premium Payable – rendered. They are recorded normally at
representative of the amount of the credit balance. Also, term as INCOME.
employee and employer
contribution to SSS which are not a. Sales – an account used to
yet paid. summarize sales of goods of a
5. Withholding Tax Payable – the trade or merchandising business.
amount of income tax withheld This includes cash sales and sale on
from the salary of employee in account.
behalf of BIR that the employer b. Service Income – the earnings
has to remit to BIR on the derived from service rendered by a
specifies date. servicing business to its customers.
b. NONCURRENT LIABILITIES – it is This includes cash and cash on
generally the portion of payable account.
beyond one year of a long-term c. Professional Fee – the earnings
liability. derived from services rendered by
a professional or professional
 servicing firm to its clients which
could be in cash or in collectibles.
d. Interest Income – the earnings
representing the time value of
money derived from promissory
notes received by the business,
whether in cash or collectible in
the future.
e. Rent Income – the income earned
from allowing others to use the
property or facility of the business.
f. Gain or Sale of other Assets – the
income derived from the sales of
assets used in the business from
the sales of assets used in the
business operation. There is gain
on sale if the proceeds exceed the
book of value of cost of the
disposed asset.

EXPENSES – are costs incurred in

conducting the business activities. It is
normally recorded at the debit balance.

a. Cost of Sales – the value of

merchandise sold.
b. Supplies Expense – the amount of
supplies consumed or used by the
business during the period.
c. Salaries and Wages Expense – the
amount paid to services rendered
by the employees in the operation
of the business.
d. Insurance Expense – the amount
of insurance during the current
period.
e. Taxes and Licenses Expense – the
cost of local as well as national
taxes that are incurred and
required to be paid in connection
with the conduct of business.
T-ACCOUNT CHART OF ACCOUNTS

-an account can be expressed in “T” -list of all the accounts used to record
device from where the debits are economic transactions.
recorded on the left-hand side and the
-usually arranged in the financial
credits are recorded on the right-hand
statement order: assets, liabilities,
side of the T.
owner’s equity, revenues, and expenses.
(ALORE)

 To debit is to record the value

received in an economic
DUAL-ASPECT CONCEPT
transaction.
 To credit is to record the value -every value received have
parted with in an economic corresponding value parted with.
transaction.
Received –nadawat.

Parted with –gi hatag/gipagawas na

*For every transaction, the value of debit money or some sht.
is always equal to the value of credit.
Rules in DEBIT & CREDIT
Account Name
DEBIT RULING:
Debit (dr) Credit (cr)
1. Increase in asset
-represents increase -represents decrease
2. Decrease in liability
In assets & expenses in assets & expen- 3. Decrease in proprietorship due to:
a. Withdrawal of the owner
And decrease in ses, and increase in b. Decrease in income
c. Increase in expenses
Liability, capital, and liability, capital &
CREDIT RULING:
Revenue. Revenue.
1. Decrease in asset
2. Increase in liability
*ACCOUNT BALANCE: 3. Increase in proprietorship due to:
a. Investment of the owner
DEBIT BALANCE –dr is greater than cr.
b. Increase in income
CREDIT BALANCE –cr is greater than dr, c. Decrease in expenses
which means alkansi ka hehe.
ACCOUNTING EQ’N/BALANCE SHEET TRIAL BALANCE
EQ’N
-it is a device used to periodically test
Assets = liabilities – owner’s equity the equality of debits and credits as
recorded in the ledger accounts.
BOOKKEEPING
-it is a list of all accounts with their
-initial entry of recording business
balances as od specific date, commonly
transaction.
prepared at the end of the month, prior to
JOURNAL the preparation of the formal financial
statements.
-the accounting record in which the
economic transactions and events are -present the amount of the balances of
initially recorded. debit and credit accounts, which are listed
in order as they appear in the chart of
-known as the “Book of initial/original accounts.
entry”
-it is the proof of the equality of debits
-provides a chronological record of and credits.
transactions with explanations and clear
references to their supporting documents
with corresponding debits & credits
Parts of a Trial Balance
JOURNALIZING
*Heading of the trial balance
-is the process of recording the effects of
economic transactions in the journal. -name of the firm/company/entity

Date –is for recording the date on which -title (trial balance)
the transaction is journalized. -date
Description –is for recording the account *Body of the Trial Balance
titles to be debited and credited and
identifying the source and nature of -account number
transactions.
-account title
PR –“posting reference
-debit and credit column
-is used to cross-reference the account
to the general ledger.

Page No. –used to cross-reference the

account to the gen. ledger.