ACCOUNTING

Types of Major Accounts

There are 5 types of major accounts
1. Assets
2. Liabities
3. Equity
4. Income
5. Expense

• 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 in increase in equity.

Income includes revenue and gains. 

• 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.

Assets 
"Difference between Current vs. Non-Current Assets"

1. 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.

Current Assets 
• 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.

Non-Current Assets 

• 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 

• Intangible Assets are assets without a physical substance.

Examples include franchise and copyright.

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

Tangible vs. Intangible Assets

Tangible Assets
Are physical assets such as cash, supplies, and furniture and fixtures.

Intangible Assets
Are non-physical assets such as patents and trademarks.

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

Differences of Current vs. Non-Current Liabilities

Current Liabilities
Liabilities that fall due (paid, recognized as revenue) within one year after year-end date.

Examples:
- Accounts Payable
- Utilities Payable
- Accrued Expense
- Unearned Income

Current Liabilities Accounts

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

• Notes Payable are amounts due to third parties supported by promissory notes.

• Accrued Expenses are expenses that 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

Non-current Liabilities
Are liabilities that do not fall due (paid, recognized as revenue) within one year after year-end date.

Examples:
- Notes Payable
- Loans Payable
- Mortgage Payable, etc.

Non-Current Liabilities Accounts
Loans Payable
Mortgage Payable

4. Owner’s Equity is the residual interest of the owner from the business.

It can be derived by deducting liabilities from assets.

Under owner's equity

• 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 is the Increase in resources resulting from performance of service or selling of goods.

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