11

Fundamentals of
Accountancy, Business
and Management 1
Quarter 1 – Module 3:
(Week 4)
The 5 Major Accounts and the
Chart of Accounts

i
About the Module

This module was designed and written with you in mind. It is here to help you master
the nature of Basics in Accounting. The scope of this module permits it to be used in
many different learning situations. The language used recognizes the diverse
vocabulary levels of students. The lessons are arranged to follow the standard
sequence of the course. But the order in which you read them can be changed to
correspond with the textbook you are now using. Please indicate the scope in
accordance/tailored by this module created.

This module is divided into two lessons, namely:

▪ Lesson 1 – Five Major Accounts

▪ Lesson 2 – The Chart of Accounts

After going through this module, you are expected to:

• discuss the five major accounts: and

• prepare a Chart of Accounts

ii
 What I Know (Pre-Test)

Instruction: Choose the letter of the correct answer to following items. Write them
on a separate sheet of paper.

1. Repayment of the part of a loan borrowed from a friend

A. Asset B. Expense C. Liability D. Owner’s Equity

2. Receipt of capital from the owner of the business

A. Asset B. Expense C. Liability D. Owner’s Equity

3. Which of the following accounts is NOT a liability?

A. Accounts Payable C. Salaries Payable
B. Accounts Receivable D. Notes Payable

4. Which of the following accounts is NOT an asset?

A. Accounts Receivable C. Cash
B. Building D. Income

5. The total Assets is Php 40,000 and the total Liabilities is Php 10,000.
What is the total equity of the business?
A. Php 10,000 B. Php 30,000 C. Php 40,000 D. Php 50,000

6. In accounting, for every transaction, the accounting equation should

always be _____________.
A. balance B. concise C. fair D. par value
`
7. Mr. A. Yu, the owner of a computer repair services was able to secure a
new laptop computer, for only Php 45,000, from his friend who owns Laugh
Tuff Limited Inc. There was no down payment. Recording the transaction
will
A. decrease an asset, decrease a liability
B. decrease an asset, decrease owner's equity
C. increase an asset, increase a liability
D. increase an asset, increase owner's equity

8. During the accounting period the assets of Mang Gupit Inc. a hair shop
was increased by Php 5,000, and the owner's equity increased by Php1,000,
then the liabilities must have
A. decreased by Php 4,000 C. decreased by Php 6,000
B. increased by Php 4,000 D. 000increased by Php 6,000

2
9. If during the accounting period the assets increased by Php 7,000, and
the owner's equity increased by Php 3,000, then the liabilities must have
A. decreased by Php4,000 C. decreased by Php10,000
B. increased by Php4,000 D. increased by Php10,000

10. It is the claim of the owner also known as the capital.

A. Assets B. Expenses C. Liabilities D. Owner’s Equity

11. It is the most liquid asset and is the medium of exchange for business
transactions.
A. Accounts Receivable C. Building
B. Accounts Payable D. Cash

12. Which is not an example under Liabilities Account?

A. Accounts Payable C. Bank Loan
B. Accounts Receivable D. Loans Payable

13. What happen to the Assets Account if the owner invests personal cash in
the business.
A. Assets Decreases C. No Effect in Assets
B. Assets Increases D. None of the above

14. What will happen to the Liabilities Accounts if the owner withdraws cash
from the business for personal use?
A. Liabilities Decreases C. No Effect in Liabilities
B. Liabilities Increases D. None of the above

15. What happen to the Owner’s Equity Accounts if the owner contributes
his/her personal truck to the business?
A. No effect on Owner’s Equity C. Owner’s Equity Increases
B. Owner’s Equity Decreases D. None of the Above

Lesson The Five Types of Accounts in

1 Accounting

What I Need To Know

At the end of this lesson, you are expected to:

3
• discuss the five major accounts;
• identify the account as assets, liabilities, capital, income or expenses; and
• cite an example of each type of account.

What’s In

Recall the accounting equation. Calculate and provide the missing amount.

ASSETS LIABILITIES OWNER’S EQUITY

Example: Php 146,000 Php 70,000 Answer: Php76,000
a. Php 15,000 Php 35,000
b. Php 65,000 Php 16,000
c. Php 48,000 Php 35,000
d. Php 56,000 Php 33,000
e Php 150,000 Php 43, 000

What transactions can you provide based on the given examples above?

Example: Mr. A invested money worth Php 76.000 to open a barbershop. He also loaned from the
bank an amount of Php 70,000 to purchase the necessary equipment.

a.________________________________________________________________________________
___________________________________________________________________

b..________________________________________________________________________________
___________________________________________________________________

c._________________________________________________________________________________
___________________________________________________________________

d._________________________________________________________________________
___________________________________________________________________________

e._________________________________________________________________________
__________________________________________________________________________

4
 What’s New

It is essential that businessmen should have the knowledge in basic accounting

system though they may have an accountant to do the job. Organized bookkeeping
begins with the understanding of the 5 types of accounts in accounting. Even in a
small business, you should be aware of these accounting categories to determine if
the accounts are increasing or decreasing. You can also start keeping accurate books
by learning about the 5 types of accounts in accounting.
Let’s start by learning the five major accounts, so you will know how to read and
analyze financial reports.

What Is It

THE FIVE MAJOR ACCOUNTS

Adopted from: Commission on Higher Education K to 12 Transition Program Management
Unit, 2016, pp. 53-56.

The five major accounts relate to each other. If one changes, the others will change
too. For instance, if you purchase a new computer worth 75,000 with a loan, then
both the Assets and Liabilities accounts will increase by Php 75,000 each.

So, the 5 types of major accounts are Assets, Liabilities, Owner’s Equity, Income and
Expense. Let us define each.

• Assets are the resources owned and controlled by the firm.

• Liabilities are obligations of the firm arising from past events which are to be
settled in the future.

• Equity or Owner’s Equity are the owner’s claims in the business. It is the residual
interest in the assets of the enterprise after deducting all its liabilities.

• Income is the increase in economic benefits during the accounting period in the
form of inflows of cash or other assets or decreases of liabilities that result to an
increase in equity. Income includes revenues and gains.

5
• Expenses are decreases in economic benefits during the accounting period in the
form of outflows of assets or incidences of liabilities that result in decreases in equity.

1. Assets

Current vs. Non-Current Assets

• Current Assets are assets that can be realized (collected, sold, used up) one year
after year-end date. Examples include Cash, Accounts Receivable, Merchandise
Inventory, Prepaid Expense, etc.

• Cash is money on hand, or in banks, and other items considered as medium of

exchange in business transactions.

• Accounts Receivable are amounts due from customers arising from credit sales
or credit services.

• Notes Receivable are amounts due from clients supported by promissory notes.

• Inventories are assets held for resale

• Supplies are items purchased by an enterprise, which are unused as of the

reporting date.

• Prepaid Expenses are expenses paid in advance. They are assets at the time of
payment and become expenses through the passage of time.

• Accrued Income is revenue earned but not yet collected

• Short term investments are the investments made by the company that are
intended to be sold immediately

6
• Non-current Assets are assets that cannot be realized (collected, sold, used up)
one year after year-end date. Examples include Property, Plant and Equipment
(equipment, furniture, building, land), long term investments, etc.

• Property, Plant and Equipment are long-lived assets which have been acquired
for use in operations.

• Long term Investments are the investments made by the company for long-term
purposes

Tangible vs. Intangible Assets.

• Tangible Assets are physical assets such as cash, supplies and furniture &
fixtures.

• Intangible Assets are non-physical assets such as patents and trademarks

Therefore, Tangible asset is an asset that has a finite monetary value and usually a
physical form while Intangible Assets are assets without a physical substance.
Examples include franchise and copyright.

2. Liabilities

Liabilities are the debts and obligations of the company to another entity.

The differences between Current & Non-Current Liabilities are as follows:

Current Liabilities are liabilities that fall due (paid, recognized as revenue) within
one year after year-end date. Examples include Accounts Payable, Utilities Payable
and Unearned Income.

Accounts Payable are amounts due, or payable to, suppliers for goods purchased
on account or for services received on account.

7
Accrued Expenses are expenses tt are incurred but not yet paid (examples: salaries
payable, taxes payable)

Unearned Income is cash collected in advance; the liability is the services to be

performed or goods to be delivered in the future.

While Non-current Assets are liabilities that do not fall due (paid, recognized as
revenue) within one year after year-end date. Examples include Notes Payable, Loans
Payable, Mortgage Payable, etc.

Notes Payable are amounts due to third parties supported by promissory notes.
Loans Payable charges interest and is usually based on the earlier receipt of a sum
of cash from a lender.

Mortgage Payable is the liability of a property owner to pay a loan that is secured
by property.

3. Owner’s Equity

Owner’s Equity is the residual interest of the owner from the business. It can be
derived by deducting liabilities from assets.

The Account Titles are used for Equity Account.

Capital is the value of cash and other assets invested in the business by the owner
of the business.

Drawing is an account debited for assets withdrawn by the owner for personal use
from the business.

4. Income

Income is the Increase in resources resulting from performance of service or selling

of goods. Where Income increases and decreases in the accounting equation, income
increases equity. Examples of Income Accounts. Service revenue for service entities,
Sales for merchandising and manufacturing companies

8
5. Expense

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

• Where Expense increases and decreases in the accounting equation. Expenses

decreases Equity in the accounting equation. Examples of Expense Accounts.
Salaries Expense, Interest Expense, Utilities Expense

What’s More

Activity 1: NOW IT’S YOUR TURN!

A. Instruction: Based on what you have learned and understood from the 5 major
accounts in accounting, match column A with the correct answer on column B. Write
your answer on the blank provided for before each number.

______1 Expense A. Owner’s Capital

______2 Asset B. Payroll
______3 Liability C. Cash in Bank
______4 Equity D. Bank Loan
______5 Income E. Sales Revenue

B. Instruction: This activity will test your knowledge gained from the 5 major
accounts in accounting. Identify and indicate whether it is an increase (+), decrease
(-), or no effect (NE) on the asset, liabilities and equity accounts.

Assets Liabilities Equity

1. Investment of cash in the business ______ _______ _______

2. Purchase of computer equipment for cash ______ _______ _______

9
3. Billed a customer for services rendered _______ _______ _______

4. Paid salaries _______ _______ _______

5. Purchased office supplies on credit _______ _______ _______

6. Paid advertising expense _______ _______ _______

7. Paid rent in advance for 3 months ______ _______ _______

8. Received cash from customers on account _______ _______ ______

9. Withdrew cash for personal use _______ _______ _______

10. Invested land into the company _______ _______ _______

What I Need To Remember

• The 5 types of major accounts are Assets, Liabilities, Owner’s Equity,

Income and Expense.
• Assets are the resources owned and controlled by the firm. Example:
Cash, Account Receivable, Cars, etc.
• Liabilities are obligations of the firm arising from past events Example:
Loans, Payables, etc.
• Equity or Owner’s Equity are the owner’s claims in the business.
Example: Capital, Withdrawal
• Income is the increase in economic benefits during the accounting
period. Example: Revenue, gains, Sales, etc.
• Expenses are decreases in economic benefits during the accounting period.
Example: Payroll Expenses, Transportation Expenses, Advertising
Expenses, etc.

What I Can Do

Answer the following questions based on your understanding on the 5 major

accounts in accounting.

10
1. Enumerate what you can see inside the house that can be classified as assets,
liabilities and owner’s equity.

2. In setting up a business, is there a need to know the 5 major accounts in

accounting? Why or why not?

Lesson
The Chart of Accounts
2

What I Need To Know

At the end of this lesson, you are expected to:

• define what is Chart of Accounts;

• prepare a Chart of Accounts; and
• value the importance of Chart of Accounts.

What’s In

In the previous lesson, you learned the 5 major accounts. Can you list the 5 majors
accounts and give at least 3 examples each?

What’s New

Read and Reflect:

Mr. Ang is a new businessman who doesn’t have any experience in accounting. His
business doesn’t maintain a chart of accounts and added to that, he is not organized
and systematic with his business transactions. By the time the BIR personnel wanted
to check his financial reports, he panicked and he needed an expert in doing the

11
accounting job. What is the root cause of the problem? Do you think Mr. Ang would
have encountered these problems had he learned about the 5 major accounts and
the chart of accounts?

What is It

The Chart of Accounts

Adopted from: Commission on Higher Education K to 12 Transition Program Management
Unit, 2016, pp. 56-58.

The chart of accounts organizes your finances into five major categories, called
accounts: assets, liabilities, equity, income and expenses. To grasp a better
understanding of these major accounts is a requirement in analyzing financial
reports and documents as well as the proper segregation and posting of its
financial transactions in the accounting system.

The following are the steps in the preparation of a basic chart of accounts:

1. Create two columns.

2. Prepare the assets first, then liabilities, then equity, then revenue and expenses.
3. List all assets, liabilities, equity, revenue and expenses account in the first
column.
4. On the second column, choose an account code (discretion of the company).
5. On the third column, write the description for each account on when to use it.

An example of a chart of accounts is given below:

Assets, Liabilities, Capital

An example of a chart of accounts is given below:

12
 Account
Account Code *may Description
vary

Assets

Cash 1000 Use for actual cash transactions

Use for customers who will pay in the

1200
Accounts Receivable future

Inventory 1300 Use for items held for sale

Prepaid Expenses 1400 Use for expenses paid in advance

Supplies 1500 Use for items to be used in the future

Use for equipment that are used in the

1600
Office Equipment office

Use for equipment that are used in the

1700
Store Equipment store

Land 1800 Use for land used in operations

Liabilities

Accounts Payable 2000 Use for the debts of the company

Use for promissory notes issued by the

2100
Notes Payable company

Salaries Payable 2200 Use for salaries to be paid in the future

Capital

Owner’s, Capital 3000 Use for putting investment or capital

Owner’s, Withdrawal 4000 Use for drawings of the owner

Revenue

Service Revenue 5000 Use for earnings

Expenses

Use for salaries incurred, regardless of

6000
Salaries Expense payment

Use for electricity and water expenses

6100
Utilities Expense incurred

*may vary

13
 What’s More

Activity 1: NOW IT’S YOUR TURN!

Instructions: Apply what you have learned from the Chart of Accounts by expressing
your ideas and opinions on each question.

1. What are the headers per column on the chart of accounts?

2. Name the five main categories that the account numbers are grouped under.

3. What is the importance of the Chart of Accounts?

4. What are the steps in the preparation of a basic chart of accounts?

What I Need To Remember

• Being organized is crucial and important in a business.

• All businesses big or small, must maintain a chart of accounts to make
an organized accounting system and to create accurate financial
reports.
• A chart of accounts gives a comprehensive depiction of your company’s
financial wellbeing.

14
 What I Can Do

Instruction: Imagine yourself as a new businessman who would like to put up a

laundry shop business. As of the moment, you can’t afford to hire an accountant, so
you need to set up your own accounting system. One of the most important parts is
to create a chart of accounts. Tabulate it properly as you create your own business
chart of accounts following the rubrics below.

Rubrics for Grading:

Content 50%
Creativeness 25%
Presentation 25%
Total 100%

Assessment (Post Test)

Instruction: Choose the letter of the correct answer to the following items. Write
them on a separate sheet of paper.

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

A. Accounts Receivable C. Intangible Assets
B. Assets D. Liabilities

2. An example of non-current tangible assets.

A. Copyright C. Plant & Equipment
B. Owner’s Equity D. Prepaid Expenses

3. These assets are identifiable, non-monetary assets without physical

substance.
A. Accounts Receivable C. Intangible Assets
B. Assets D. Tangible Assets

4. It is the claim of the owner also known as the capital.

A. Owner’s Equity C. Prepaid Expense

15
B. Owner’s Drawings D. Property

5. It is the most liquid asset and is the medium of exchange for business
transactions.
A. Asset B. Cash C. Capital D. Prepaid Expense

6. It is an expense for leased office space, equipment or assets rented from

others.
A. Liability C. Property plant and Equipment
B. Prepaid Expense D. Rent Expense

7. Examples of this are cash, account receivable and prepaid expenses.

A. Assets B. Capital C. Expenses D. Revenue

8. It is a written promise from the customer to pay his receivables on a

certain future date.
A. Accounts Receivable C. Notes Receivable
B. Note Expense D. Revenue

9. Payroll is the amount you pay to your employees in the form of salaries
and wages. This is an example of what account?
A. Assets C. Owner’s Equity
B. Expenses D. Revenue

10. ___________ is when a business owner takes funds out of their business
for personal use.
A. Owner’s Drawings B. Owner’s Fund
C. Owner’s Equity D. Owner’s Liability

11. Bank Loan is a sum of money borrowed by a customer or business from

a bank. This is an example of what account?
A. Asset B. Liability C. Owner’s Equity D. Revenue

12. Transportation and Allowances are examples of what accounts?

A. Asset C. Owner’s Equity
B. Expenses D. Revenue

13. Copyright and Royalties are under the account of Assets.

A. Current Assets C. Tangible Assets
B. Intangible Assets D. None of the above

14. Example of a non-current liabilities.

A. Accounts Payable C. Salaries Payable
B. Notes Payable D. Taxes Payable

15. Service Fees Income is an example of what account?

A. Revenue C. Owner’s Equity
B. Expenses D. Assets

16
 17
LESSON 1:
What I know (Pre-Test)
1. C 2. D 3. B 4. D 5. B 6. A 7. C 8. B 9. B 10. D
11. D 12. B 13. B 14. C 15. C
What’s More
Activity 1.A
1. B 2. C 3. D 4. A 5. E
Activity 1. B
Assets Liabilities Equity
1. __+___ __NE___ __+___
2. __NE__ __NE__ __NE__
3. __+___ __NE___ __+___
4. ___-____ __NE__ ___-___
5. __+___ __+___ __NE__
6. ___-____ __NE__ ___-___
7. __NE__ __NE__ __NE__
8. __+___ __NE___ __+___
9. ___-____ __NE__ ___-___
10.__+___ __NE___ __+___
LESSON 2 : What’s More
1 Account 2 Assets
Account Code Lkabilities
Description Equity
Revenue
Expenses
3 The chart of accounts organizes your finances into five major categories,
called accounts: assets, liabilities, equity, income and expenses. It makes
required.
its accounting system and aerved as tool to establish and create an
Remember: This portion of the module contains all the answers. You HONESTY is
effective tool to formulate its financial statements
Answer Key
 18
Diliman, Quezon City., 2016
Senior High School”. 4th Floor, Commission on Higher Education, C.P. Garcia Ave.,
“Fundamentals of Accountancy Business, and Management Teaching Guide for
Commission on Higher Education K to 12 Transition Program Management Unit.
Text Book
References
4 1. Create two columns.
2. Prepare the assets first, then liabilities, then equity, then revenue and
expenses.
3. List all assets, liabilities, equity, revenue and expenses account in the
first column.
4. On the second column, choose an account code (discretion of the
company).
5. On the third column, write the description for each account on when
to use it.
5 The chart of accounts organizes your finances into five major categories,
called accounts: assets, liabilities, equity, income and expenses. It makes
its accounting system and served as tool to establish and create an
effective tool to formulate its financial statements
6
1. Create two columns.
2. Prepare the assets first, then liabilities, then equity, then revenue and
expenses.
3. List all assets, liabilities, equity, revenue and expenses account in the
first column.
4. On the second column, choose an account code (discretion of the
company).
5. On the third column, write the description for each account on when to
use it.
 Congratulations!

You are now ready for the next module. Always remember the following:

1. Make sure every answer sheet has your

§ Name
§ Grade and Section
§ Title of the Activity or Activity No.
2. Follow the date of submission of answer sheets as agreed with your
teacher.
3. Keep the modules with you AND return them at the end of the school
year or whenever face-to-face interaction is permitted.

19