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5 Major Accounts Week 5
5 Major Accounts Week 5
ACCOUNTS
OBJECTIVES
At the end of this module, the learners should able to:
1. identify the account as assets, liabilities, capital,
income or expenses
2. cite an example of each type of account
3. prepare a chart of accounts
The Account
Account is the basic storage of information in
accounting. It is a record of the increases and decreases
in a specific item of asset, liability, equity , income or
expense.
An account may be depicted through a “ T – account”. A
‘T – account” is called as such because it resembles the
letter “ T “ . A “ T ” account has three parts namely:
1. Account title – describe the specific item of asset,
liability, equity, income or expense.
2. Debit Side – the left side of the account.
3. Credit Side – the right side of the account.
CASH This is the
“account title”
Debit Credit
Jan. 1 500
Jan 3 1,000 The term “Credit’ (Cr ) simply refers to the
800 Jan.4 right side of the account. It is sometimes
refered to as the “value parted with”
700
The term “debit” (Dr) simply The difference between the total debits and
Refers to the left side of the credits in the account represents the
account. balance of the account ( 500 + 1,000 – 800
It is sometimes referred to as the = 700)
“value received”
The Five Major Accounts
1. Assets are the resources owned and controlled by
the firm.
2. Liabilities are obligations of the firm arising from
past events which are to be settled in the future.
3.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.
The Five Major Accounts
4. 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
in increase in equity. Income includes revenue and gains.
Revenue-arises in the course of the ordinary activities of the business.
e.g. sales, service income.
Gains – represent other items that meet the definition of income and
may or may not arise in the course of the ordinary activities of an entity.
• Loans Payable
• Mortgage Payable
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.
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withdrawn by the owner for personal use from the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.
Income Statement Accounts
Income is the Increase in resources resulting from
performance of service or selling of goods.
• Income increases equity.
Examples of Income Accounts.
• Service fees-revenue earned from rendering
services.
• Sales (revenue earned from the sale of goods.)
Income Statement Accounts