Fundamentals of

Accountancy,
Business and
Management 1 Quarter 3
– Module 4: Types of
Major Accounts
 What I Need to Know

This module was designed and written so that you will be able to define the five
major accounts. Also, you will be able to identify and classify accounts according to
the five major types (ABM_FABM11-IIId-e-19-21).

Specifically you are expected to:

a. discuss the five major accounts and

b. prepare a chart of accounts.

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 What I Know

Directions: Identify what is described in each number. Choose the word/s from
the box below. Write your answers on a separate sheet of paper.

Cash Tangible Assets

Prepaid Expenses Notes Payable
Inventories Capital
Long term Investments Income
Current Liabilities Expense

__________1. It is a medium of exchange on business transactions.

__________2. These are the bills paid in advance.

__________3. These are the assets / resources that are held for resale.

__________4. These are the investments of the firm made for long term purposes.

__________5. These are obligations that reach their due dates for payments within
one year after the year-end date.

__________6. Examples of this are cash, supplies and furniture and fixtures.

__________7. Debts that are supported with written notes or promises.

__________8. These are worth of cash and other assets invested in the business.

__________9. It is the increase in resources resulting from the performance of service

or selling of goods.

__________10.It is the decrease in resources resulting from the operations of the

business.
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 Lesson
Types of Major Accounts
1
In accounting, there are major accounts that you need to know and understand
clearly so you will not be confused on recording business transactions. These are
assets, liabilities, owner’s equity, revenues, and expenses.

Assets, liabilities, and owner's equity have been discussed in the previous
lessons. You have also previewed the revenues and expenses. Understanding of
these lessons will enable you to debit and credit an account which is an integral
part of journalizing business transactions.

What’s In

Directions: Write (+) if there is an increase, (-) if there is a decrease, or NE if

there is no effect on the assets, liabilities and equity accounts.
Write your answers on a separate sheet of paper.

Transactions Asset Liability Owner's Equity

1. Invested cash in the business
2. Purchased equipment on a cash basis
3. Billed a customer for a spa service
4. Paid employee's salary
5. Purchased supplies on account
6. Paid an advertisement for the
company's new product
7. Paid the rent in advance
8. Received cash from customers
9. Withdrew cash for some personal use
10. Invested a vehicle on the company

Notes to the Teacher

This module prepares students to identify and classify accounts
according to the five major types.
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 What’s New

Directions: Choose the term being described from the given choices below. Write
only the letters of your answers on a separate sheet of paper.

A. accrued income F. cash

B. non- current asset G. owner’s equity
C. notes receivable H. intangible assets
D. income I. liability
E. rent expense J. chart of accounts

____________ 1. It is the debt of the company payable in money, goods, or services.

____________ 2. It is the list of all accounts of the company that is being used by the
firm to their financial records.
____________ 3. These are non-monetary assets but identifiable although without
physical substance.
____________ 4. It is the claim of the owner on the business.
____________ 5. It is the most liquid asset which can be given and taken easily.
____________ 6. It is an expense for lease like ofice space, building space, and land.
____________ 7. Examples of this are service revenue and sales.
____________ 8. It is a written note from the customer to pay his account on a given
time and date.
____________ 9. Property Plant and Equipment (PPE), land, and buildings are
examples of these.
____________ 10. This account title is a revenue earned but not yet collected.

What is it

Let us first know the definitions of the five (5) major accounts:

1. Assets are the resources owned and controlled by the firm or the
company. Examples of these are cash, computer systems and
patents.
2. Liabilities are the obligations of the company arising from past events which
are to be settled in the future. These represent what the company owes to
other people, organization, and fnancial institutions.
Examples of these are mortgages, vehicles and loans.
3. Equity or Owner’s Equity is the owner’s claims in the business. It is part
of the total assets that the owners of the company fully own.
An example of this is capital.
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 4. Revenue or Income is the money that the company earns from its
regular sales of products or services. This is earned by the company
through sales of products or services.
Examples of this are sale of building materials and accounting services
by a CPA firm.
5. Expenses are the money that the company spends to produce the goods or
services it sells.
Examples of these are rent expense, supplies expense and salaries
expense.
Assets

There are the two (2) classifications of assets:

1. Current Assets
2. Non- Current Assets

Diference between Current vs. Non-Current

Assets & Tangible vs. Intangible Assets

• Current Assets are assets that can be collected, sold, and even used up to
one year after year-end date.

Examples of Current Assets are:

Cash is money on hand, or in banks, and other items considered as a

medium of exchange in business transactions.
Accounts Receivable are amounts due from customers arising from
debts. Notes Receivable are amounts due from clients supported by a
written
note or promise.
Inventories are assets held for resale in the course of the business.
Supplies are items purchased by an enterprise that is unused as of
the
reporting date.
Prepaid Expenses are advance payment for expenses.
Accrued Income is an income or revenue earned by the firm but not
yet collected.
Short-term Investments are the investments made by the company that
is intended to be sold immediately.

• Non-current Assets are assets that cannot be collected, sold, and even
used up to one year after year-end date.

Examples of Non-Current Assets

Property, Plant, and Equipment are long-lived assets that have been

acquired for use in operations.

Long term Investments are the investments of the firm made for long term

purposes.
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 • Tangible Assets are physical assets in the form of cash, furniture and
fixtures, and supplies.

• Intangible Assets are non-physical assets in the form of trademarks

and patterns.

Liabilities

Current vs. Non-Current Liabilities

Current Liabilities are those that reach its due date for payment
(paid, recognized as revenue) within one year after year-end
date.
Examples of Current Liabilities
Accounts Payable are amounts due or debts to the suppliers for
goods purchased or for services received on
account.
Notes Payable are amounts due to third parties supported by a written
note or promise.
Accrued Expenses are treated as liabilities since these are the expenses
that are incurred but not yet paid (e.g. salaries payable,
taxes payable).
Unearned Income is cash or payment collected in advance.

Non-current Liabilities are those that do not reach its due date for payment,
(paid, recognized as revenue) within one year after year-end date.

Examples of Non Current Liabilities

Loans Payable is a contract wherein the owner of the property gives

the right to use it to another party in exchange for an
inte res t payment and gives back the property at the end
of their contract. It is documented by promissory note.
And in the case there is still a portion which is unpaid as
of the date of a company's balance sheet , the remaining
balance on the loan is called a loan payable.

Mortgage Payable is the liability of a property owner to pay a loan

that is secured by property and from the borrower’s
point of view. The mortgage is considered as long -term
liability . Some part of the deb t that is payable within
the next 12 months is classified as a short- te rm
liabilit y . The remaining unpaid principal will be the
total amount due of the loan.
 Just like in assets, there is also a classification when it comes to a
liability account.

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Owner's Equity

There are two (2) important elements that comprised the equity:

•Capital is the worth of cash and other assets invested in the business.
•Drawing is an account debited for assets withdrawn by the owner for
personal use from the business.

Income - is the increase in resources resulting from the performance of service

or selling of goods.

Examples of income accounts are:

•Service revenue for service entities
•Sales for merchandising and manufacturing companies
•Interest Income

Expense -is the decrease in resources resulting from the operations of

the business.

Examples of expense accounts are:

•Salaries expense
•Interest expense
•Utilities expense

After the discussion on the Five Major Accounts, let us now proceed on the chart
of accounts starting from its defnition.

A chart of accounts is a listing of all accounts used by companies in

their financial records.
Here are the five steps in preparing a basic chart of accounts:

1. Make two columns.

2. Prepare the assets, liabilities, equity, revenue, and expenses,
respectively.
3. List all assets, liabilities, equity, revenue, and expenses account in
the first column.
4. In the second column, choose an account code (this may vary
depending on the company).
5. In the third column, write the description of each account title.
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Chart of Accounts:

Account Code Account Title

Assets
101 Cash
102 Accounts Receivable
103 Inventory
104 Prepaid Expense
105 Supplies
106 Equipment
107 Building
108 Land
Liabilities
201 Accounts Payable
202 Notes Payable
Capital
301 Owner’s Capital
302 Owner’s Drawing
401 Service Revenue
501 Salaries Expense
502 Rent Expense
503 Utilities Expense

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 What’s More

Directions: Classify each account according to its category. Put a check

(✓) on the right column where each item belongs. Write your answers on a
separate sheet of paper.

Account
Assets Liabilities
Title Owner’s Revenue
Non- Non- Expenses
Current Current Equity s
Current Current
Assets Liabilities
Assets Liabilities

1. Cash
2. Accounts
Payable

3. Building

4. Mortgage
Payable

5. Service
Revenues

6. Accounts
Receivable

7. Salaries
Expense

8. Inventory

9. Rent
Expense

10.
Unearned
Service
Revenue

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 What I Have Learned

Directions: Identify what is described on each number. Find the answer from the
box below. Write your answers on a separate sheet of paper.

Inventories Drawing Tangible

Owner’s equity Cash Notes Receivable

Expenses Asset Chart of Accounts

Capital Income Prepaid Expenses

Mortgage Payable Intangible Accrued Income

1. It is a list of all the accounts used by companies in their financial records.

2. It is the decrease in resources resulting from the operations of the business.
3. These are the amounts due to third parties supported by a written note or
promise.
4. These are assets without physical substance.
5. These are physical assets.
6. It is an income or revenue earned by the firm but not yet collected.
7. These are expenses paid in advance.
8. These are money on hand, or in banks, and other items considered as a
medium of exchange in business transactions.
9. It is the owner’s claim in the business.
10. These are the resources owned and controlled by the firm or the company.
11. These are assets held for resale in the courses of the business.
12. It is an account debited for assets withdrawn by the owner for personal use
from the business.
13. It is the liability of a property owner to pay a loan that is secured by property.
14. Capital and drawing are the two important elements of this account title.
15. It is the worth of cash and other assets invested in the business.
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 What I Can Do

Directions: Prepare a chart of accounts for J. Padilla Barber Shop. Write your
answers on a separate sheet of paper.

Account Code Account Titles

Padilla, Drawings
Equipment
Accounts Payable
Notes Payable
Land
Prepaid Expense
Service Revenue
Padilla, Capital
Utilities Expense
Building
Rent Expense
Cash
Supplies
Accounts Receivable
Salaries Expense
Inventory

Assessment

Directions: Choose the letter of the correct answer. Write your answers on a
separate sheet of paper.

1. This is not one of the five major accounts.

A. interest
B. income
C. liability
D. owner's equity

2. These are the resources owned by the owners.

A. assets
B. liabilities
C. revenues
D. expenses
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3. These are the debts of the business.
A. liabilities
B. assets
C. revenues
D. owner's equity

4. Capital and drawings are examples of these.

A. owner's equity
B. revenues
C. expenses
D. net profit

5. This is a tangible asset.

A. land
B. goodwill
C. patent
D. copyright

6. This is the account title where the Unearned Revenue falls.

A. liability account
B. asset account
C. income account
D. revenue account

7. Loan payable and mortgage payable are examples of Non-Current Liabilities.

A. Yes, these are examples of Non-Current Liabilities.
B. No, these are examples of Current
Liabilities. C. Yes, but sometimes these are
current assets. D. No, because these are non-
current assets.

8. It is the listing of the accounts used by the company to their financial

records.
A. chart of accounts
B. list of accounts
C. accounts receivable
D. accounts payable

9. These are amounts due from third parties supported by promissory notes.
A. notes payable
B. notes receivable
C. notebook
D. none of the above

10.These are the items purchased by an enterprise that are unused as of the
reporting date.
A. supplies
B. inventories
C. equipment
D. machineries
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 11. These are long-lived assets that have been acquired for use in operations.
A. property
B. property, plant, and equipment
C. non-current assets
D. current assets

12. This is an increase in resources resulting from the performance of services

or selling of goods.
A. goodwill
B. assets
C. expenses
D. income

13. This is an account withdrawn by the owner for personal use from the
business.
A. capital
B. accounts payable
C. drawing
D. mortgage payable

14. This is a cash or payment collected in advance.

A. accounts receivable
B. service revenue
C. sales
D. unearned revenue

15. These consist the chart of accounts.

A. account code, account title
B. account, date, reference
C. description, date, account code
D. none of the above

Additional Activities

Directions: Give at least two (2) examples for each major account. Write
your answers on a separate sheet of paper.

Owner's
Assets Liabilities Revenues Expenses
Equity
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References

Anastacio, Ma. Flordeliza. 2011. Financial Management (With Industry Based Perspective).
Manila: Rex Book Store.

DepEd K To 12 Curriculum Guide, Fundamentals Of Accountancy, Business And Management 1. 2016.

Gilbertson, Claudia. 2010. Fundamentals Of Accounting. 8th ed. Australia: Cengage Learning.

Teaching Guide For Senior High School, Fundamentals Of Accountancy, Business And Management
1. 2016. Quezon City: Commission on Higher Education.

Pefianco, Erlinda C. 1996. The Accounting Process: Principles And Problems. Makati: Goodwill Trading.

Padillo, Nicanor, Jr. 2011. Financial Statements Preparation, Analysis And Interpretation. Manila:
GIC Enterprises.

Young, Felina C. 2008. Principles Of Marketing. Manila: Rex Book Store.