Types of major

accounts
Introduction:
Major accounts in accounting refer to the fundamental categories used to organize
and classify financial transactions within an organization's accounting system. These
accounts are essential for recording, summarizing, and reporting the financial activities of a
business. Major accounts typically include assets, liabilities, equity, revenue, and expenses.
Assets represent resources owned or controlled by the company, such as cash, inventory,
and property. Liabilities encompass obligations owed to external parties, such as loans,
accounts payable, and accrued expenses. Equity reflects the owner's claim on the
company's assets, often represented by common stock and retained earnings. Revenue
accounts record income generated from the sale of goods or services, while expense
accounts track the costs incurred in operating the business. Understanding major accounts
is crucial for maintaining accurate financial records, preparing financial statements, and
analyzing the financial performance of an organization.
FIVE MAJOR ACCOUNTS:
Assets
Liability
Capital
Income
Expenses
Assets
◦ Assets are resources owned or controlled by a company that hold economic value and
are expected to provide future benefits. They are classified into two main categories:
current assets and non-current assets. Current assets are those expected to be
converted into cash or used up within one year or the operating cycle of the business,
whichever is longer.
Current assets
◦ Cash: Represents the liquid funds available to the company for immediate use in meeting financial obligations
or investing in opportunities.
◦ Accounts Receivable: Reflects amounts owed to the company by customers for goods or services sold on credit,
which are expected to be collected in the near future.
◦ Short-Term Investments: Consist of financial assets acquired by the company for short-term purposes, such as
marketable securities or treasury bills, with the intention of earning a return on investment or preserving capital.
◦ Notes Receivable: Represents written promises from customers or other parties to repay a specified sum of
money by a certain date, usually with interest, providing a source of future cash inflows for the company.
◦ Inventory: Comprises goods held by the company for sale in the ordinary course of business, including raw
materials, work-in-progress, and finished goods, which are expected to be converted into cash through sales.
◦ Prepayments: Refer to payments made in advance for goods or services, such as prepaid insurance or prepaid
rent, which represent future expenses that will be recognized over time as the related benefits are consumed or
utilized.
Noncurrent assets
◦ Investments: Represent long-term holdings in securities or other entities, such as stocks, bonds, or
investments in subsidiaries, joint ventures, or associates, held for capital appreciation, dividends, or
strategic purposes.
◦ Fixed Assets: Include tangible assets like land, buildings, machinery, and equipment held for long-term
use in the production or service delivery process, with benefits extending beyond one year and not
intended for resale.
◦ Intangible Assets: Consist of non-physical assets lacking physical substance but holding economic
value, such as patents, trademarks, copyrights, and goodwill, providing future economic benefits to the
company.
◦ Other Assets: Encompass a variety of long-term assets not classified under investments, fixed assets, or
intangible assets, such as long-term prepaid expenses, long-term deposits, and any other assets with a
useful life exceeding one year, which provide future benefits to the company's operations or financial
position.
Liabilities
Liabilities represent obligations or debts owed by a company to external parties, such as creditors, suppliers, or lenders,
which require future settlement or performance. These obligations can be classified into current liabilities and non-current liabilities:

Current Liabilities: Include obligations due within one year or the operating cycle of the business,
whichever is longer, and typically require the use of current assets for settlement. Examples include
accounts payable, short-term loans, accrued expenses, and current portions of long-term debt.

Non-Current Liabilities: Represent obligations not due within the current operating cycle or one year
and are typically settled over a longer period, often with non-current assets. Examples include long-term
loans, bonds payable, deferred tax liabilities, and non-current portions of long-term debt.
Current Liabilities:
◦ Accounts Payable: Represents amounts owed to suppliers or vendors for goods or services
purchased on credit, which are expected to be paid within a short period.
◦ Notes Payable: Consists of written promises to repay borrowed funds, often with interest, within
a specified timeframe, typically shorter than one year.
◦ Accrued Liabilities: Reflect obligations for expenses incurred but not yet paid or recorded, such
as wages, interest, taxes, or utilities, which are recognized as liabilities until settled.
◦ Current Portion of Long-Term Debts: Represents the portion of long-term loans or debt
obligations due for repayment within the next accounting period and is classified as a current
liability.
◦ Other Payables: Encompasses various short-term obligations to be settled within one year,
excluding accounts payable and notes payable, such as accrued expenses or miscellaneous
payables.
Noncurrent liabilities
Noncurrent Liabilities: Noncurrent liabilities refer to obligations that are not due for settlement within the
normal operating cycle of the business or within one year from the balance sheet date. These are typically
debts or obligations that extend beyond one year, such as long-term loans, deferred tax liabilities, or non-
current portions of long-term debt.

Bonds Payable: Bonds payable specifically refer to a type of long-term debt instrument issued by a company
to raise capital. When a company issues bonds, it promises to repay the bondholders the principal amount
borrowed (the face value of the bond) at a specified future date (the maturity date) and make periodic interest
payments over the life of the bond. Bonds payable are considered a form of noncurrent liability because they
represent obligations that extend beyond one year from the balance sheet date.

In summary, bonds payable are a specific type of noncurrent liability, representing long-term debt
obligations arising from the issuance of bonds. Noncurrent liabilities encompass a broader range of long-term
financial obligations, including bonds payable as well as other types of long-term loans and obligations.
Equity/ owner’s capital/
stockholder’s equity
Equity: Equity represents the residual interest in the assets of a company after deducting liabilities. In
other words, it is what remains for the owners of the company after all debts and obligations have
been paid off. Equity can be thought of as the ownership stake in the company.

Owner's Capital: Owner's capital specifically refers to the portion of equity that represents the
contributions made by the owner(s) or shareholders to the company. This includes the initial
investments made by the owner(s) to start the business as well as any additional investments made
over time.

Stockholder's Equity: Stockholder's equity is a term commonly used in corporations and refers to the
portion of equity that belongs to the shareholders of the company. It represents the ownership interest
of shareholders in the corporation and is typically divided into two main components: contributed
capital (such as common stock) and retained earnings (the cumulative profits retained in the business).