Denniel R.

Mayor

BSIE-3D

1. Define the following five major accounts:

Balance Sheet Accounts
a. Assets- is a resource with economic value that an individual, corporation,
or country owns or controls with the expectation that it will provide a future
benefit. Assets are reported on a company's balance sheet and are
bought or created to increase a firm's value or benefit the firm's
operations.
i. Current assets- are all the assets of a company that are expected
to be sold or used as a result of standard business operations over
the next year. Current assets include cash, cash equivalents,
accounts receivable, stock inventory, marketable securities, pre-
paid liabilities, and other liquid assets.
ii. Non-current assets- are a company's long-term investments that
are not easily converted to cash or are not expected to become
cash within an accounting year.
b. Liabilities- is something a person or company owes, usually a sum of
money. Liabilities are settled over time through the transfer of economic
benefits including money, goods, or services
i. Current liabilities- are a company's short-term financial obligations
that are due within one year or within a normal operating cycle.
Examples of current liabilities include accounts payable, short-term
debt, dividends, and notes payable as well as income taxes owed.
ii. Non-current liabilities- also known as long-term liabilities, are
obligations listed on the balance sheet not due for more than a
year.
c. Equity- represents the value that would be returned to a company's
shareholders if all of the assets were liquidated and all of the company's
debts were paid off.

Income Statement Accounts

d. Income- is the revenue a business earns from selling its goods and
services or the money an individual receives in compensation for his or
her labor, services, or investments.
e. Expenses- is the cost of operations that a company incurs to generate
revenue.

2. What is a chart of accounts?

- A chart of accounts (COA) is an index of all the financial accounts in the
general ledger of a company. In short, it is an organizational tool that provides a
digestible breakdown of all the financial transactions that a company conducted during a
specific accounting period, broken down into subcategories.

3. Define the following common account titles:

BALANCE SHEET ACCOUNTS
ASSETS
Current Assets
a. Cash- is bills, coins, bank balances, money orders, and checks. Cash is
used to acquire goods and services or to eliminate obligations. Items that
do not fall within the definition of cash are post-dated checks and notes
receivable.
b. Accounts Receivable- is the balance of money due to a firm for goods or
services delivered or used but not yet paid for by customers.
c. Allowance for bad debts- is a valuation account used to estimate the
amount of a firm's receivables that may ultimately be uncollectible.
Lenders use an allowance for bad debt because the face value of a firm's
total accounts receivable is not the actual balance that is ultimately
collected.
d. Notes Receivable- is a written promise to receive a specific amount of
cash from another party on one or more future dates. This is treated as an
asset by the holder of the note.
e. Inventory- is the accounting of items, component parts and raw materials a
company uses in production, or sells.
f. Prepaid expenses- are future expenses that are paid in advance. On the
balance sheet, prepaid expenses are first recorded as an asset. After the
benefits of the assets are realized over time, the amount is then recorded
as an expense.
Non-current Assets
g. Land- is a long-term asset account that reports the cost of real property
exclusive of the cost of any constructed assets on the property
h. Building- is a noncurrent or long-term asset account which shows the cost
of a building (excluding the cost of the land).
i. Equipment- is a type of fixed asset used by a company in its business
operations and reported on the long-term assets section of the balance
sheet under the line, item property, plant, and equipment.
j. Motor vehicle- is a long-term asset account that reports a company's cost
of automobiles, trucks, etc. The account is reported under the balance
sheet classification property, plant, and equipment.
k. Furniture and fixtures- are larger items of movable equipment that are
used to furnish an office. Examples are bookcases, chairs, desks, filing
cabinets, and tables. This is a commonly-used fixed asset classification
that is categorized as a long-term asset on an organization's balance
sheet.
l. Accumulated depreciation- is the total amount an asset has been
depreciated up until a single point. Each period, the depreciation expense
recorded in that period is added to the beginning accumulated
depreciation balance.
LIABILITIES
Current Liabilities
m. Accounts Payable- refers to an account within the general ledger that
represents a company's obligation to pay off a short-term debt to its
creditors or suppliers.
n. Notes Payable- is a liability account where a borrower records a written
promise to repay the lender
o. Accrued Expenses- also known as accrued liabilities, is an accounting
term that refers to an expense that is recognized on the books before it
has been paid. The expense is recorded in the accounting period in which
it is incurred.
p. Unearned Income- is money received by an individual or company for a
service or product that has yet to be provided or delivered.
Non-Current Liabilities
q. Bonds Payable- is a liability account that contains the amount owed to
bond holders by the issuer. This account typically appears within the long-
term liabilities section of the balance sheet, since bonds typically mature in
more than one year.
r. Long-term Loans Payable- is an arrangement under which the owner of
property allows another party the use of it (usually cash) in exchange for
an interest payment and the return of the property at the end of the
lending arrangement. The loan is documented in a promissory note. I
EQUITY
s. Owner’s Capital- is the equity account listed in the balance sheet of a
business. It represents the net ownership interests of investors in a
business. This account contains the investment of the owners in the
business and the net income earned by it, which is reduced by any draws
paid out to the owners.
t. Owner’s Drawings- is used to record the amounts withdrawn from a sole
proprietorship by its owner. This is a contra equity account that is paired
with and offsets the owner's capital account.
INCOME STATEMENT ACCOUNTS
INCOME
u. Service fees- is a fee that is added to the billing for a primary product or
the delivery of a service.
v. Sales- is an exchange of money for goods, services or other property. In
accounting, it refers to the operating revenues earned by a company by
selling their products or services.
w. Sales Returns and allowances- is a line item appearing in the income
statement. This line item is presented as a subtraction from the gross
sales line item, and is intended to reduce sales by the amount of product
returns from customers and sales allowances granted.
x. Sales discounts- is a reduction in the price of a product or service that is
offered by the seller, in exchange for early payment by the buyer. A sales
discount may be offered when the seller is short of cash, or if it wants to
reduce the recorded amount of its receivables outstanding for other
reasons.
y. Interest income- is the amount of interest that has been earned during a
specific time period. It is earned from investments that pay interest, such
as in a savings account or certificate of deposit.
z. Gains- is a general increase in the value of an asset or property. A gain
arises if the current price of something is higher than the original
purchase price.
EXPENSES

a. Purchases- means to take possession of a given asset, property, item

or right by paying a predetermined amount of money for the
transaction to be completed successfully. In other words, its' an
exchange of money for a particular good or service.
b. Freight-in- is the transportation cost associated with the delivery
of goods from a supplier to the receiving entity. For accounting
purposes, the recipient adds this cost to the cost of the received
goods.
c. Purchase returns and allowances- is an account that is paired with and
offsets the purchases account in a periodic inventory system. The
account contains deductions from purchases for items returned to
suppliers, as well as deductions allowed by suppliers for goods that are
not returned.
d. Purchase discounts- s a deduction that a company may receive if the
supplier offers it and the company pays the supplier's invoice within a
specified period of time.
e. Cost of sales (or Cost of goods sold)- refers to the direct costs of
producing the goods sold by a company. This amount includes the cost
of the materials and labor directly used to create the good.
f. Freight-out- is the transportation cost associated with the delivery of
goods from a supplier to its customers. This cost should be charged to
expense as incurred and recorded within the cost of goods sold
classification on the income statement.
g. Salaries expense- is the fixed pay earned by employees. The expense
represents the cost of non-hourly labor for a business.
h. Rent expense- is the cost incurred by a business to utilize a property or
location for an office, retail space, factory, or storage space. Rent
expense is a type of fixed operating cost or an absorption cost for a
business, as opposed to a variable expense.
i. Utilities expense- is the cost consumed in a reporting period related to
electricity, heat, sewer, and water expenditures. The category is
sometimes also associated with expenditures for ongoing telephone
and internet service.
j. Supplies expense- refers to the cost of consumables used during a
reporting period. They are usually charged to expense as incurred; in
which case the supplies expense account is included within the cost of
goods sold category on the income statement
k. Bad debt expense- is recognized when a receivable is no longer
collectible because a customer is unable to fulfill their obligation to pay
an outstanding debt due to bankruptcy or other financial problems.
l. Depreciation expense- is the amount deducted from gross profit to
allow for a reduction in the value of something because of its age or
how much it has been used.
m. Advertising expense- it is part of operating expense in the income
statement. Sometimes, companies pay for advertisements in advance
to media companies.
n. Insurance expense- is the amount that a company pays to get an
insurance contract and any additional premium payments.
o. Taxes and licenses- it is an expense that include business taxes,
registration, and licensing fees paid to the government
p. Transportation expense- are a subset of travel expenses that refer
specifically to the cost of business transportation by car, plane, train,
etc.
q. Interest expense- is the cost incurred by an entity for borrowed funds.
Interest expense is a non-operating expense shown on the income
statement. It represents interest payable on any borrowings, bonds,
loans, convertible debt or lines of credit.
r. Miscellaneous expense- is a general ledger account that may contain a
large number of minor transactions. These transactions are for
amounts so small that they are not worth categorizing in a separate
account.
s. Losses- is an excess of expenses over revenues, either for a single
business transaction or in reference to the sum of all transactions for
an accounting period.
t. Net Income- also called net earnings, is calculated as sales minus cost
of goods sold, selling, general and administrative expenses, operating
expenses, depreciation, interest, taxes, and other expenses. It is a
useful number for investors to assess how much revenue exceeds the
expenses of an organization.
u. Net Loss- is when total expenses (including taxes, fees, interest, and
depreciation) exceed the income or revenue produced for a given
period of time.