Types of Major Accounts – Quick Review
Major Account Groups
major accounts: Assets, Liabilities, Equity, Expenses, Revenue
Financial-position elements (status at a point in time): Assets, Liabilities, Equity
Assets
Definition: resources controlled by the entity expected to yield future economic benefits
Key ideas: may be intangible, need not be owned (control is enough), entity-specific
Current Assets
Realized, sold, or consumed within operating cycle or months
Typical titles:
Cash on Hand / Cash in Bank: Physical cash or deposits in demand accounts, readily available for use.
Petty Cash Fund: A small amount of cash kept on hand for minor, incidental expenses.
Cash Equivalents: Short-term (original maturity of three months or less), highly liquid investments.
Notes Receivable: A formal, written promise from another party to pay a specific amount of money, typically including interest.
Accounts Receivable: Amounts owed to the entity by customers for goods sold or services rendered on credit, usually an oral promise.
Allowance for Bad Debts: A contra-asset account that reduces total accounts receivable to the estimated collectible amount.
Accrued Interest Income: Interest earned but not yet received on investments or loans.
Advances to Employees: Funds given to employees for business travel or expenses, to be settled later.
Inventories: Goods held for sale, in production, or supplies for production.
Prepaid Expenses: Expenses paid in advance but not yet incurred or used.
Unused Supplies: Items purchased but not yet consumed in operations.
Non-Current Assets
All assets not meeting current criteria; life > year
Property, Plant & Equipment (PPE): land, buildings, machinery, furniture, motor vehicles
Land: The site on which a building stands; generally not depreciable.
Buildings: Structures used for business operations.
Machinery: Equipment used in manufacturing or other operational processes.
Furniture: Office or store furnishings.
Motor Vehicles: Company cars, trucks, or delivery vans.
Accumulated Depreciation: A contra-asset account representing the total depreciation expense charged against a tangible asset.
Intangible Assets: goodwill, patents, copyrights, trademarks, franchises, etc.
Goodwill: Arises when acquiring another company for a price higher than the fair value of its identifiable net assets.
Patents: Exclusive rights granted for an invention.
Copyrights: Exclusive legal rights to reproduce, publish, and sell an original work of authorship.
Trademarks: Recognizable signs, designs, or expressions that identify products or services.
Franchises: Rights granted to a franchisee to sell a product or service under a franchisor's name.
Investments in Equity Securities: Long-term investments in the stocks of other companies.
Investment Properties: Land or buildings held to earn rentals or for capital appreciation, not for operational use.
Liabilities
Definition: present obligations leading to future sacrifices of economic benefits
Current Liabilities
Settled during normal cycle or within months
Titles:
Accounts Payable: Amounts owed by the entity for goods or services purchased on credit from suppliers.
Short-term Notes Payable: Formal, written promises to pay a specific amount within one year.
Accrued Expenses: Expenses incurred but not yet paid (e.g., salaries payable, utilities payable, interest payable, taxes payable).
Unearned Revenue: Cash received from customers for goods or services that have not yet been delivered or performed.
Current Portion of Long-Term Debt: The part of a long-term loan that is due for repayment within the next months.
Non-Current Liabilities
Obligations payable beyond months
Titles:
Mortgage Payable: Long-term loans secured by real estate assets.
Bonds Payable: Formal debt instruments issued to investors, promising to pay interest periodically and principal at maturity.
Long-term Notes Payable: Formal written promises to pay a specific amount after one year.
Owner’s Equity
Residual interest: Assets minus Liabilities
Capital account (owner’s name): A permanent equity account that records the owner's investments and retained profits.
Withdrawals (Drawings): Amounts of cash or other assets taken out of the business by the owner for personal use.
Income Summary: A temporary closing account used to summarize all revenue and expense accounts before transferring the net balance to the owner's capital account.
Revenue (Income)
Increase in economic benefits resulting in equity rise
Common titles:
Service Income/Revenue: Earnings from providing services.
Sales: Earnings from selling goods.
Specific:
Professional Fees: Revenue earned by professionals (e.g., doctors, lawyers, accountants).
Rental Income: Income received from allowing others to use the entity's property.
Interest Income: Income earned from lending money or investing in interest-bearing securities.
Miscellaneous Income: Income from activities not central to the main business, or small, infrequent gains.
Expenses
Decreases in economic benefits resulting in equity drop
Key titles:
Cost of Sales (Cost of Goods Sold - COGS): The direct costs attributable to the production of the goods sold.
Salaries/Wages Expense: Cost of employee compensation.
Utilities Expense: Cost of electricity, water, gas, internet, etc.
Rent Expense: Cost of using property or equipment not owned.
Supplies Expense: Cost of supplies that have been consumed during the period.
Insurance Expense: Cost of insurance coverage that has expired during the period.
Depreciation Expense: The systematic allocation of the cost of a tangible asset over its useful life.
Bad Debts Expense: The estimated cost of accounts receivable that are expected to be uncollectible.
Interest Expense: The cost of borrowing money.
Taxes & Licenses: Statutory levies paid to government entities.
Miscellaneous Expense: Small, infrequent expenses that do not fit into other specific categories.