FIVE ACCOUNTING ELEMENTS
services.
Real Accounts Nominal Accounts
1. Assets 4. Expense
2. Liabilities 5. Revenue/income
3. Capital/owner’s equity
b. NONCURRENT ASSETS – these are
REAL ACCOUNTS
ASSETS – are resources or things of value
owned by the business. It is recorded
normally at the debit balance.
a. CURRENT ASSETS – are those
assets which can be reasonably
converted into cash within a short
period of time.
1. Cash - any item on hand with
monetary value that a bank will
accept for deposit and all
amounts currently deposit the
bank in the name of business.
2. Accounts Receivable – the
amounts collectible on open
accounts of the customers.
3. Notes Receivable – a
promissory notes received by
the business from its debtors or
customers. A promissory note is
written promise to pay certain
amount on specified a and cabinets.
determined date.
4. Accrued Interest Receivable –
the interest earned on note
receivable but not yet received
in cash.
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
process or in rendering
6. Prepaid Supplies – various
supplies which have been
bought for use in the office but
are still unused.
assets that do not meet the criteria
of current asset. Generally, they
include tangible, intangible,
operating and financial assets pf a
long-term nature.
1. Land – the site owned by the
business on which the business
building is constructed. This
plant asset is not subject to
depreciation. All other plant
assets are subject to
depreciation.
2. Building – the structure owned
by the business used in the
operation of business.
3. Furniture and Fixture – long-
lived items used by the business
including store furnishings, such
as showcases, counters,
containers, display racks, as
well as furniture used for office
purposes such as desks, chairs
4. Equipment – consists of what
generally might be called
machinery used in the business
such as computers, delivery
equipment and many others.
LIABILITIES – are present obligations to
pay cash or cash equivalents by an entity.
In other words, they represent claims
against the assets of the business. It is
recorded normally at the credit balance.
a. CURRENT LIABILITIES – liabilities that
is expected to be settled in the
normal course of the enterprise’s
operating cycle and within twelve
months of the statement of financial
position date.
1. Accounts Payable – an obligation
or debt to creditors for money
borrowed or merchandise and
other assets bought on credit.
Examples are obligations arising
from purchase on account.
2. Notes Payable – a promissory
note issued by the business to its
creditors for money borrowed or
merchandise and other assets
bought on credit.
3. Accrued Interest Payable – the
interest incurred in the current
period but not yet paid.
4. SSS Premium Payable – rendered. They are recorded normally at
representative of the amount of
employee and employer
contribution to SSS which are not
yet paid.
5. Withholding Tax Payable – the
amount of income tax withheld
from the salary of employee in
behalf of BIR that the employer
has to remit to BIR on the
specifies date.
b. NONCURRENT LIABILITIES – it is
generally the portion of payable
beyond one year of a long-term
liability.
OWNER’S EQUITY – the residual amount
after deducting liabilities from assets. It
comprises the capital contribution and
withdrawals by the owner. It is increased
by capital contribution of the owner and
net income of the business and decreased
by the owner’s withdrawals and net losses
of the business.
- Owner’s equity is described as
owner’s capital (sole
proprietorship), partner’s capital
(partnership), and shareholder’s
equity (corporation). The normal
balance of these accounts is
credit balance.
a. Drawing – is a temporary account
used to record initially the amount
taken by the owner from the
business. This is closed to the
capital account of the owner at the
end of the accounting period.
NOMINAL ACCOUNTS
REVENUE – represent the earnings of the
business from sales of goods or service
the credit balance. Also, term as INCOME.
a. Sales – an account used to
summarize sales of goods of a
trade or merchandising business.
This includes cash sales and sale on
account.
b. Service Income – the earnings
derived from service rendered by a
servicing business to its customers.
This includes cash and cash on
account.
c. Professional Fee – the earnings
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”
device from where the debits are
recorded on the left-hand side and the
credits are recorded on the right-hand
side of the T.
-list of all the accounts used to record
economic transactions.
-usually arranged in the financial
statement order: assets, liabilities,
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
EQ’N
Assets = liabilities – owner’s equity
BOOKKEEPING
-initial entry of recording business
transaction.
JOURNAL
-the accounting record in which the
economic transactions and events are
initially recorded.
-known as the “Book of initial/original
entry”
-provides a chronological record of
transactions with explanations and clear
references to their supporting documents
with corresponding debits & credits
JOURNALIZING
-is the process of recording the effects of
economic transactions in the journal.
TRIAL BALANCE
-it is a device used to periodically test
the equality of debits and credits as
recorded in the ledger accounts.
-it is a list of all accounts with their
balances as od specific date, commonly
prepared at the end of the month, prior to
the preparation of the formal financial
statements.
-present the amount of the balances of
debit and credit accounts, which are listed
in order as they appear in the chart of
accounts.
-it is the proof of the equality of debits
and credits.
Parts of a Trial Balance
*Heading of the trial balance
-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.