CHAPTER II

A C C O U N T I N G T E R M I N O L O G I E S
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Learning Objectives
Lesson 1 will help the students to:

• ·Identify the accounts as

assets, liabilities, capital,
income or expense;
• ·Cite an example of each type
of account;
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ASSETS
– are resources controlled by the
entity due to past events and from
which future economic benefits are
expected to flow to the entity.
 • Current Assets – refers to cash and other
assets that are easily converted into cash
or consumed during the accounting period
usually one year.
• Non-Current Assets – refers to assets that
have the following characteristics:
1. More or less permanent in nature;
2. They possess physical existence;
3. They are not for sale;
4. They are intended for use in the
operation.
CURRENT ASSETS
• Cash on hand – refers to cash and other cash
items which are not yet deposited in the bank.
• Cash in bank – is money deposited in the bank.
• Notes Receivable – are claims of the business
from anyone evidenced by a note.
• Interest Receivable – interest earned on an
interest-bearing note not yet collected.
• Accounts Receivable – refers to claims of the
business from anyone for sales made or
services rendered on account.
CURRENT ASSETS
• Estimated Uncollectible Account – sometimes called
allowance for bad debts.
• Advance to officers and employees – is a term that
refers to amounts given to officers and employees
usually deductible from their salaries.
• Merchandise inventory – refers to goods unsold at the
end of the accounting period or on hand at the
beginning of the year.
• Prepaid Expenses – are expenses paid in advance or
items that are bought which will be used during
accounting period.
NON-CURRENT ASSETS
• Tools – refers to small items of equipment like
pliers, hammer, screwdrivers, etc.
• Land – refers to land space owned by the business.
• Building – refers to the building or edifice
constructed, owned and intended for use by the
business.
• Furniture and Fixtures – is a term used to, include
tables and chairs, cabinets, counters, and other
pieces of furniture used in the business.
NON-CURRENT ASSETS
• Delivery equipment – is a term that includes
cars, jeeps, trucks, van, and other
transportation vehicles owned by the
business.
• Accumulated Depreciation – is a contra-asset
account. It is a deduction from a particular
fixed asset account.
• Intangible assets – are assets that do not have
physical existence owned by the business.
Examples are goodwill, patents.
LIABILITIES
- is an obligation that a business owes to
someone and its settlement involves the
transfer of cash or other resources.
Liabilities must be classified as current
or non-current depending on the
duration over which the entity intends to
settle the liability.
 • Current liabilities – a liabilities
that are expected to be settled
within one year from the reporting
date.
• Non-current liabilities - A
liability which will be settled over
the long term.
CURRENT LIABILITIES
• Accounts Payable – is a current liability which refers to
debts or obligations that arise from purchase of goods
or services on account.
• Notes Payable – is a current liability if the note is payable
within one year.
• Interest Payable – is the interest due to an interest
bearing note. Accrued interest expense is term
synonymous with interest payable.
• Taxes Payable – are taxes due the for government are not
yet paid by the business.
• Salaries Payable – are salaries not yet paid by the
business to its employees or workers.
NON-CURRENT LIABILITIES
• Long-Term Liabilities – are obligations or debts that
will be due and payable beyond one year.
• Mortgage Payable – is the liability of a property
owner to pay a loan that is secured by property.
• Bonds Payable –are a form of debt financing issued
by corporations, governments, and other entities in
order to raise capital.
OWNER’S EQUITY OR Capital
is a term that refers to the vested interest of the
owner in the business. Equity is what the business
owes to its owners.
• Owner’s drawing – is a term that shows the
withdrawal of cash or other items from the
business by the owner. This is deducted from the
income earned by the business.
• Income and Expense Summary – is a temporary
account opened at the end of the accounting
period to absorb income and expense accounts
before finally closing it to capital.
INCOME
is a general term to mean any earning made by the
business.
• Service income refers to earnings derived from
services rendered whether on cash or on
account.
• Fees is another general term used to designate
income.
• Legal fee is income from rendering legal
services. Medical fees, Accounting fees, Dental
fees and other terms may be used to denote
income from a particular type of professional
INCOME
• Sales is a term to denote income derived
from the sales of goods.
• Commission income is an income account to
designate earnings received from selling
anything on a commission basis.
• Other income is another income account to
designate earnings received from sources
other than its main source of income.
COST AND EXPENSES
• Taxes and Licenses – are payment made by the
business to the ‘s government for it’s business
operations.
• Salaries Expenses – refers to the cost of services
rendered by the employees or workers of the
business.
• Supplies Expense – refers to the cost of office items
like stationery, bond papers, carbon papers and etc.
• Delivery Expense – refers to the cost of
transportation in delivering goods or services to
customers.
• Bad debts Expense – refers to the portion of
COST AND EXPENSES
• Depreciation expense – refers to the portion of the
cost of the fixed asset which has been charged to
income during the period.
• Insurance expense – refers to the insurance
premium paid by the business.
• Rent Expenses – refers to the space occupied by the
business or the payment for the use of any property
by the business.
• Interest Expense – refers to the amount charged for
the use of money.
• Advertising Expense – includes promotional
expenses in the selling of the product.
CHART OF ACCOUNTS

A chart of accounts is a list of account

titles used by the bookkeeper as a
guide in recording business
transactions. The chart is arranged in
the financial statement order, that is,
assets first, followed by liabilities,
owner's equity, income and expenses.
CHART OF ACCOUNTS
EXERCISE
 CLASSIFICATION. Classify the following assets into current
assets and non-current assets.

_____________ 1. Notes Receivable

_____________ 2. Unexpired Insurance
_____________ 3. Supplies on hand
_____________ 4. Prepaid rent
_____________ 5. Office Equipment
_____________ 6. Transportation Vehicle
_____________ 7. Tools
_____________ 8. Prepaid Commission
_____________ 9. Accrued interest income
_____________ 10. Medical Equipment
 CLASSIFICATION. Classify the following into current liabilities
and non-current liabilities.

_____________ 1. Due to Mr. Reyes

_____________ 2. Salaries Payable
_____________ 3. Installment accounts due to six months
_____________ 4. PhilHealth contributions payable
_____________ 5. Mortgage Payable
_____________ 6. Bonds Payable
_____________ 7. Withholding taxes payable
_____________ 8. Utilities Payable
_____________ 9. Notes Payable for 3 years
_____________ 10. SSS Premium Payable
CLASSIFICATION. Classify the following accounts into asset,
liability and capital/equity.

_____________ 1. Antonio, Drawing

_____________ 2. Accounts Payable
_____________ 3. Prepaid Rent
_____________ 4. Unexpired Insurance
_____________ 5. Merchandise Inventory
_____________ 6. SSS Premium expense
_____________ 7. Land
_____________ 8. Bad Debts Expense
_____________ 9. Interest Income
_____________ 10. Accumulated Depreciation
Bonus Question: Who is
your most handsome
teacher in Accounting?