Chapter 4

T-account

Called because of the letter “T”

Account Title

Describes the specific item of asset, liability, equity, income or expense

Debit side

The left side ofnthe account

Credit side

The right side of the account

Revenue

Happens in the course of the ordinary activities of a business

Gains

Represent other itmes that meet the definition of income and may or may not arise in the course of the ordinary activities of an entity

Chart of accounts

List of all the accounts used by a business

Cash

Includes money or its equivalent ready for use

Accounts Receivable

Receivables supported by oral or informal promises to pay

Allowance for bad debts

The aggregate amount of estimated losses from uncollectible accounts receivable

Notes receivable

Receivables supported by written or formal promises to pay in the form of promissory notes

Inventory

Goods that are held for sale

Prepaid supplies

Cost of unused office and other supplies

Prepaid rent

Rent paid in advance

Prepaid Insurance

Insurance paid in advance

Land

The lot on which the building of the business has been constructed or a vacant lot which is to be used as future plant site

Building

The structure

Accumulated depreciation - building

The total amount of depreciation expense recognized since the building was acquired abd made available for use

Equipment

Consists of various things such as

1. Machinery

2. Transportation equipment

3. Office equipment

4. Computer equipment

5. Furniture and fixtures

Accumulated depreciation - equipment

The total amount of depreciation expenses recognized since the equipment was acquired and made available for use

Accounts Payable

Obligations supported by oral or informal promises to pay by the debtor

Notes payable

Obligations supported by written and formal promises to pay by the debtor in the form of promissory notes

Interest payable

Interest incurred but not yet paid

Salaries payable

Salaries already earned by employees but not yet paid by the business

Utilities payable

Utilities already used but not yet paid

Unearned income

Items related to income that were collected in advance before they are earned

Owner’s capital

The residual amount after deducting liabilities from assets

Owner's drawings

This is to record the temporary withdrawals of the owner during the period

Service fees

Reveneus earned from rendering services

Sales

Revenues earned from the sale of goods

Interest income

Revenues earned from the issuance of interest-bearing activities

Gains

Income earned from the sale of assets (not inventory)

Cost of Goods Sold

Represents the value of inventories that have been sold during the accounting period

Freight-out

represents the sellers’ costs of delivering goods to customers

Salaries Expense

Represents the salaries earned by employees for the services rendered during the accounting period

Rent Expense

Rentals that have been used up during the accounting period

Utilities Expense

Supplies Expense

Cost of supplies that have been used during the period

Bad debt expense

the amount of estimated losses from uncollectible accounts receivable during the period

Depreciation expesnse

the portion of the cost of a depreciable asset that has been allocated to the current accounting period

Advertising expense

cost of promotional or marketing activities during the period

Insurance Expense

cost of insurance

Taxes and licenses

cost of business and local taxes required by the government for the conduct of business

Interest Expense

cost of borrowing money

Transportation expense

represent the necessary and ordinary cost of employees getting from one workplace to another which are reimbursable by the business

Travel expenses

costs incurred when travelling on business trips

Miscellaneous expense

other expenses

Losses

expenses which may or may not arise from the ordinary course of business activities