Account Titles

The increases and decreases in accounting element as affected by a business transaction are recorded in a device called account name, account title or account. Each accounting element is composed of several accounts which describe the related economic transactions and events. To maintain uniform account name, the business must have a listing of all the accounts it uses to record economic transactions. This listing of all accounts is called “Chart of Accounts. ”

The Chart of accounts is usually arranged in the financial statement order – that is, asset accounts first, followed by liability accounts, owner’s equity, revenues and expenses accounts. An example of chart of accounts could be listed as follows: Description of Account Titles Accounting uses several account titles to describe economic transactions and events. The Asset Accounts Assets are resources or things of value owned by an enterprise. Generally, they are recorded in the books of accounts with a normal debit balance.

The asset accounts are classified into two main categories, the current assets and the noncurrent assets. Current Assets — an asset should be classified as a current asset when any of the following criteria4 are met: 1. It is expected to be realized, or is held for sale or consumption in the normal course of the enterprise’s operating cycle; or 2. It is held primarily for trading purposes or for the short-term and expected to be realized within twelve months of the balance sheet date; or 3. Is cash or a cash equivalent which is not restricted in its use.

It can be inferred that if an asset does not meet any of the criteria above, it shall be classified as noncurrent~asset. The operating cycle of an enterprise is the time between the acquisition of materials entering into a process and its realization in cash or an instrument that is readily convertible into cash. 5 Some of the currents assets that are commonly used are: oCash — any item on hand with ‘monetary value that a bank will accept for deposit and all amounts currently on deposit with the bank in the name of the business.

This includes coin and currency, personal checks, money orders, traveler’s checks made payable to the business and bank drafts. Also included are any funds that are currently on deposit at a bank and readily available as checking and savings account. oCash Equivalents — investments that are readily convertible to cash and with short maturity of three months or less from the date of acquisition. 6 They are available upon demand (unrestricted). Examples are three-month maturity treasury bills, money market funds, commercial papers, and the like.

Temporary Investments — short-term investments with a term of more than three months but within one year. Examples are current trading securities, current available for sale securities, etc. oAccounts Receivable — the amounts collectible on open accounts of the customers. These represent debtor’s oral promise to pay certain amount to the business and the right of the business to collect certain amount in peso. Examples are receivables from sales of goods or services. ·Notes Receivable — a promissory note received by the business from its debtors and/or customers.

A promissory note is a written promise to pay a certain amount on specified or determinable date. ·Allowance for Bad Debts or Provision for Doubtful Accounts — this is an amount estimated uncollectible on receivable in compliance with the principle of conservatism. It is credited to serve as a contra account for the related receivable. Other terms used to describe this account are “allowance for uncollectible accounts” and “allowance for bad debts. ” ·

Accrued Interest Receivable — the interest earned on note receivable but not yet received in cash. Inventories — assets 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 the rendering of services. 7 Examples are merchandise inventory, work-in-process inventory and raw materials inventory. ·Prepaid Supplies — various supplies which have been bought for use in the office but are still unused. Examples are unused coupon bonds, ink, ball pen, and janitorial supplies. Noncurrent Assets — these are assets that do not meet the criteria of a current asset.

Generally, they include tangible, intangible, operating and financial assets of a long-term nature. •Long-term Investments — investments intended to be held for more than one year. Examples are investments in bonds, investments in stocks, investment to affiliates, etc. •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. •Building – the structure owned by the business that is used in the operation of the business.

Furniture and Fixtures — long-lived items used by the business including store furnishings, such as showcases, counters, scales, containers, display racks, as well as furniture used for office purposes, such as desks, chairs, and cabinets. •Equipment — consists of what generally might be called the machinery used in a business such as computers, delivery equipment of any sort, or machinery used in conveying, packing, sorting or altering the commodities handled. •Accumulated Depreciation — the aggregate periodic costs of using a depreciable plant asset.

In accordance with the systematic cost allocation principle, the acquisition cost of depreciable plant asset should be allocated as expense over the useful lives of the related plant assets. Examples are accumulated depreciation — building, accumulated depreciation — equipment, etc. •Intangible Assets – long-lived assets that do not have physical substance and not held for sale but are useful in the operation of a business. In most cases, intangible assets provide their owners with privileges, rights or competitive advantages over other firms.

Examples are goodwill, trademark, trade name, copyright, patent and franchise. The Liability Accounts Liabilities are obligations owed by an enterprise. In other words, they represent claim against the assets of the business. Liabilities are classified into two main categories, (1) the current liabilities and the (2) non-current liabilities. Current liability — a liability that meets the following criteria8: 1. It is expected to be settled in the normal course of the enterprise’s operating cycle; or 2. Is due to be settled within twelve months of the balance sheet date.

All other liabilities should be classified as non-current liabilities. Examples of current liabilities are: •Bank Overdrafts (also known as cash overdrafts) — refer to the credit balance in the cash account resulting from the issuance of checks (payments of liabilities through checks) with a sum larger than the balance of actual cash deposit in the bank. •Accounts Payable is an obligation or debt to creditors for money borrowed or merchandise and other assets bought on credit. Examples are obligations arising from purchases on account. Notes Payable is a promissory note issued by the business to its creditors for money borrowed or merchandise and other assets bought on credit.

Accrued Interest Payable is the interest incurred in the current period but not yet paid. • Current Portion of Loans Payable is the amount of money borrowed from a bank or financial institution. •SSS Premium Payable represents the amount of employee and. employer contribution to SSS which are not yet remitted to SSS. Employees and employers are required to be member of Social Security System. As members, they are required to pay membership dues to SSS as employee’s share and as employer’s share. Withholding Tax Payable is 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 specified due date.