Chapter 8: Types of Major

Accounts
At the end of this chapter, you should be able to;
Discuss the five major accounts
Cite examples of each type of account
Prepare a chart of accounts
Accounting Equation
ASSETS = LIABILITIES + EQUITY
REVENUES AND EXPENSES
What makes up assets?
What composes liabilities and Equity?
ACCOUNTS –
ASSETS
- is a resource controlled by the entity as a result of past events and
from which future economic benefits are expected to flow to the
entity/business.
ASSETS
Types of Assets
1. CURRENT ASSETS – are all
assets which are expected to be
realized within the ordinary
course of business, or a span of
12 months, whichever is longer.
2. NON-CURRENT ASSETS - A
noncurrent asset is an asset that is
not expected to turn to cash
within one year.
Current Asset - CASH
Cash – the most basic and familiar of all assets. Cash is money
owned by the company. Cash kept in the company’s premises
is called Cash on hand. Cash on hand includes bills, coins, and
bank checks. Checks are reported as part of cash because
these documents are accepted as payments and deposits.
Cash in bank refers to money in the bank which can be kept in
a savings or checking account.
Cash Equivalents are technically not cash because it is not
immediately available for use. (Time deposits with term
maturities of ninety days or less)
Current Asset – ACCOUNTS RECEIVABLE
Accounts Receivable – are oral promises to the entity/business
to receive cash at a later date.
A/R are usually current assets that result from selling goods or
providing services to customers on credit. Accounts receivable
are also known as trade receivables.
Nontrade receivables or other receivables
Examples: Interest Receivable, Receivables from employees
Contra-Asset Account is a negative asset account
that offsets the asset account with which it is paired.

Allowance for doubtful accounts/ Bad debts Allowance

is a contra-asset account.

The allowance for doubtful accounts is a contra-asset

account that records the amount of receivables expected
to be uncollectible.
** Contra means against
Current Asset – Short Term Investment
• Short term investments account
contains the company’s
investments in low-risk, highly
liquid assets such as bonds and
stocks, which are expected to be
liquidated in less than a year.

**liquid – easily and quickly

convertible into cash.
 Current Asset – Notes Receivable
• Notes Receivable account represents
promises to the entity to receive cash at a
later, with the main distinction that notes
receivable are all written, and hence, more
formal than accounts receivable.
• Are also sometimes called Promissory
Notes.
PN is a legal document that says the borrower
promises to pay, on scheduled payment dates,
a specific sum called principal and interest
based on principal and stated interest rate.
Current Asset - INVENTORIES
Inventory is the term for
the goods available for
sale and raw materials
used to produce goods
available for sale. It also
includes work-in-process
items and supplies.
Current Asset - Prepayments

Prepayment is an amount simply paid in

advance for goods or services anticipated
to be received by the entity in the future.
Examples; Rent (Prepaid Rent), Insurance
(Prepaid Insurance), Supplies
Noncurrent Assets
Noncurrent assets are assets other than the current assets.
While current assets are assets which are expected to be
converted to cash within the next 12 months or within
normal operating cycle of a business. In other words, these
are assets which are expected to generate economic
benefits over more than one year.
Non current assets are illiquid or not easily converted into
cash.
Noncurrent Asset - Investments
Perhaps the most liquid of the noncurrent assets, the
investments account includes all the company’s
investments which does not expect to realize within
1 year.
Examples; Investments in real estate, long-term
notes, government treasury bills, and funds set aside
for long-term purposes.
 Noncurrent Asset – Fixed Assets
Fixed assets are what can be called as the
most tangible, longest serving assets a
company can have. They are expected to
not be converted into cash immediately,
and are regularly placed as means of
production.
Also called as Property, Plant and
Equipment. It includes land, land
improvements, buildings, machineries,
equipment, furniture and fixtures.
Contra-Asset Account – Accumulated
Depreciation
Fixed assets, with the exception of land, also gradually
deteriorate with the passage of time, through usage, normal
wear and tear, and obsolescence, Such deterioration is more
properly termed as depreciation, a form of expense.

Accumulated Depreciation - contra asset account records

the depreciation to date of a fixed asset.
Noncurrent Assets – Intangible Assets
Intangible assets are assets that lack physical substance,
and yet are similarly realizable over long periods of
time.
Examples include patents, copyrights, franchises,
goodwill, trademarks and licenses. Often they are
simply represented by written documents or certificates
stating their description and ownership status.
Noncurrent Assets – Other assets
Other assets – all remaining items which do not fall into
any of the accounts mentioned. Assets that are unique
and hard to classify.

** As a practical consideration, it is favorable to limit

the usage of this account to encourage more distinct
classifications.
Classify the following a current or noncurrent
asset
1. Inventories
2. Accounts Receivable
3. Intangible Assets
4. Prepayments
5. Fixed Assets
6. Cash Equivalents