Fundamentals of Accountancy, Business and Management 1
Fundamentals of Accountancy, Business and Management 1
Fundamentals of Accountancy,
Business and Management 1
Module 4
Fundamentals of Accountancy, Business and Management 1
Module 4
First Edition, 2021
Copyright © 2021
La Union Schools
Division Region I
All rights reserved. No part of this module may be reproduced in any form
without written permission from the copyright owners.
Management Team:
Subtasks:
1. Define the five major accounts and chart of accounts.
2. Classify the different account tittles according to major accounts.
3. Identify the components of chart of accounts.
4. Demonstrate the steps in preparing chart of accounts.
Jumpstart
Let us start your
journey in learning
PRE-TEST thru a Pre-Test
Activity1: IDENTIFICATION
Direction: The account titles inside the box are the ones described in the
sentences below. Match each account title with the correct sentence. Write
your answer in your answer sheet.
1
____________2. These are the present obligations of an entity arising from past
transactions or events, the settlement of which is expected to result in an
outflow from the business of resources embodying economic benefits.
____________3. These are earnings arising from the main line operations of the
business. Such as rendering of services or selling of goods.
____________4. This represents the amount of money owed by the customer or
debtor to the business evidenced by a promissory note.
____________5. This represents manual or automated machines used in the
business, like computers, laptops, ring binders, and delivery vehicles.
2
Discover
To fully understand how to post transactions and read financial reports, we must
understand these account types.
3. Owner’s Equity - are the owner’s claims in the business. It is the residual
interest in the assets of the enterprise after deducting all its liabilities. It can be
derived by deducting liabilities from assets.
CLASSIFICATION OF ASSETS
3
Current assets are usually presented first on company’s balance sheet and
they are arranged in their order of liquidity. Liquidity means the speed at
which the assets should be turning to cash; or the assets nearness to cash.
2. Non- Current Assets are assets that cannot be easily and readily converted
into cash and cash equivalents. Non-current assets are also termed fixed
assets, long-term assets, or hard assets.
Accounts under Non-current Assets
Property, Plant and Equipment are long- lived assets which have been
acquired for use in operations. This are tangible assets, meaning they are
physical in nature or can be touched. (examples: Building, Table & chairs,
sofa, printers, laptop, filing cabinet, etc.)
Long Term Investment - other investment made by the firm that will
benefit company for several years. Example: Investment in Equity
Securities
Intangible assets – these are assets that are identifiable, non- monetary
assets without physical substance. Example: Trademark, Goodwill, Patents,
Copyright.
* Trademark. A trademark is a unique symbol or words used to
represent a business or its products.
* Goodwill (pakikisama or suki in tagalog) - The value of a company’s brand
name, solid customer base, good customer relations, good employee, relations,
and proprietary technology represent some reasons why good will exists.
(Marshall Hargrave & Amy Drury)
4
CLASSIFICATION OF LIABILITIES
Current Liabilities
Liabilities that falls due within one year (12 months) after the reporting date
of Financial Statement. Examples: Accounts Payable, Utilities Payable and
Unearned Income.
Non- Current Liabilities
Liabilities that do not fall due within one year-end date. Those accounts that
is due after 12 months are considered as non-current liabilities. Examples:
Notes Payable, Loan payable, mortgage payable.
5
INCOME
✓ Note: The term “income” was used since earnings interest from bank
deposits is not the main line operation of the business.
Sales – represents the earnings made by any business that is from selling
of goods or merchandise.
Professional Fees – this represents earnings made by the professionals or
experts from rendering services to their clients. Like: Lawyer, Doctors,
Teacher, Certified Public Accountants, etc.
EXPENSE
Expenses are decreases in economic benefits during accounting period in the
form of outflows of assets or incidences of liabilities that result in decreases in
equity
6
allowance that estimates how much of their current receivables are
uncollectible. **
1. A customer bought barbecue worth ₱500 from your barbecue business. He told
that he will be paying it next week.
2. Your electric bill for the month of January amounted to ₱2,000. The bill is not
yet paid.
3. You are renting a space for your barbecue stand. The rent is ₱5,000 per
month.
4. You sold barbecue worth ₱500.
5. You invested ₱ 1,500 to your barbecue business.
Answer:
1. Accounts receivable because the ₱500 is collectible from the customer and
recorded as account for Assets.
2. Utilities payable. The unpaid utility already used but not yet paid and
recorded as account for Liability.
3. Rent expense. At the end of the month, you will record ₱5,000 as rent
expense and classified as account for Expense.
4. Sales. The worth ₱500 is recorded as Sales and classified as account for
Income Statement.
5. Capital. Your ₱1,500 investment is recorded in the Owner’s capital and
classify on the account Owner’s Equity.
CHART OF ACCOUNTS
What is a chart of accounts?
7
Example of a chart of accounts
XYZ PHOTOCOPYING CENTER
Chart of Accounts
Account Assets Account Equity/Owner’s Equity
Code Code
110 Cash 310 ABM, Capital
111 Accounts Receivable 311 ABM, Drawing
112 Allowance for Doubtful Accounts 312 Income Summary
113 Notes Receivable
114 Interest Receivable
115 Unused Supplies Revenues
116 Prepaid Rent 410 Photocopying Revenue
117 Photocopying Equipment 411 Interest Income
118 Accumulated Depreciation- 412 Other Income
Photocopying Equipment
119 Furniture and Fixtures
120 Accumulated Depreciation
121 Other Assets
Liabilities Expenses
210 Accounts Payable Taxes and Licenses Expense
211 Notes Payable 510 Salaries Expense
212 Salaries Payable 511 Supplies Expense
213 Income Tax Payable 512 Utilities Expense
214 Interest Payable 513 Rent Expense
215 Unearned Photocopying Revenues. 514 Depreciation Expense
216 Mortgage Payable 515 Doubtful Accounts Expense
217 Loan Payable 516 Interest Expense
218 Other Liabilities 517 Other Expense
Each business shall formulate a chart of accounts that best suits its
needs. Large corporations may have thousands of accounts and have more
digits on their account numbers. Smaller companies may have lower accounts
increases, the digits in the account number of accounts.
8
Assigning Numbers in the Chart of Accounts
The first digit in the 3- digit numbering refers to the major types of accounts.
The first digit in the account number refers to which of the five major account
categories an individual account belongs to – “1” for asset accounts, “2” for
liability accounts, “ 3” for equity accounts, etc.
9
Explore
Across
10
Down
6. An account represents the earnings made by any business from selling of
goods or merchandise.
7. It is an exclusive right granted for invention.
8. It is presented first on company’s balance sheet and they are arranged
according in their order of liquidity.
9. An oral promise to entity to receive cash at a later date.
10. Represents the portion of the total assets that the business owner fully
owns
Direction: Identify where you classify the following items. Use a separate sheet of
paper for your answers.
Account Title Current Non- Tangible Intangible
Current
1.Account Receivable ✓
2. Building ✓ ✓
3. Cash
4. Computer Equipment
5. Copyrights
6. Delivery Truck
7. Furniture & Fixtures
8. Supplies
9. Inventories
10. Land
11. Notes Receivable
12. Office Supplies
13. Accrued Income
14. Prepaid Insurance
15. Prepaid Rent
Activity No. 3
Direction:Identify the proper place in the chart of accounts of the following
transaction.
Assets Liability Equity Income Expense
1. Property, plant &
equipment /
2. Water Expense
3. Office Supplies
4. Prepaid Rent
5. Unearned Income
11
6. Taxes, duties and
licenses
7. Account
Receivable
8. Capital
9. Service Revenue
10. Accounts Payable
. Deepen
Activity
Determine what ACCOUNT TITLE and group according to MAJOR
ACCOUNT. Write your answer in a separate sheet of paper.
Account Title Major Account
_______________________1. He purchased table napkins worth ₱200 to be used in
your barbecue operations.
_______________________2. The customer with the ₱500 account receivable is broke
you have estimated that you can only collect ₱420 from him.
_______________________3. He hired a helper in a barbecue business. The employee
earns compensation of ₱8,000.
_______________________4. The cost of barbecue that was sold for ₱500 is ₱300.
_______________________5. He paid Justin Bieber ₱5,000, 000 to endorse the
product.
_______________________6. On your total account receivable of ₱500, you expect to
collect only about ₱480.
_______________________7. The barbeque grill was stolen.
_______________________8. He received an order of barbecue worth ₱800. The
customer paid the sale price but instructed you to deliver the barbecue next
week _______________________9. He made a temporary withdrawal of ₱200
from your barbecue business.
_______________________10. He expects to use the barbecue grill for 5 years.
Activity B
Indicate whether it is an increase (+), decrease (-), or (NE) no effect on the asset,
liabilities and equity accounts.
Assets Liabilities Equity
1. Investment of cash in the business ___________ _________ __________
2. Purchase of computer equipment for cash ___________ _________ __________
3. Billed a customer for services rendered ___________ _________ __________
4. Paid salaries ___________ _________ __________
5. Purchased office supplies on credit ____________ _________ __________
12
6. Paid advertising expense ___________ _________ __________
7. Paid rent in advance for 3 months ___________ _________ __________
8. Received cash from customers on account ___________ _________ __________
9. Withdrew cash for personal use ____________ _________ __________
10. Invested land into the company ___________ _________ _________
Chart of Accounts
Codes Description
Cash
Prepaid Rent
Revenue
Delivery Vehicles
Accounts Payable
Equipment
Inventory
Interest Income
Advertising Expense
Accounts Receivable
Notes Payable
Accrued Expense
Office Supplies
Furniture
Loans Payable
Capital
Owner’s Withdrawal
Wage Expense
Electricity Expense
Rent Expense
Account Codes
Assets 100-199 Liabilities 200-299
Equity 300-399 Income 400-499
Expenses 500-559
13
Gauge
Multiple Choice: Read and analyze each item. Choose the best
answer. Write your answer on a separate sheet of paper.
1. What is the principal classification of liabilities?
A. Accrued Income and Prepaid Expense.
B. Current and Non-current Liabilities
C. Mortgage and Loans Payable
D. Current liabilities
2. What type of account is prepaid insurance?
A. Assets B. Expense C. Income D. Owner’s Equity
3. What type of account is accrued income?
A. Assets B. Expense C. Liabilities D. Owner’s Equity
4. Which of the following best describe PREPAID RENT?
A. It represents to the amount of money owed by the customers to the
business.
B. It refers to advanced payment made by the business to cover future rental
payments.
C. It is the physical structure owned and used by the business to conduct its
business operation.
D. It refers to the amount of money owed by the customer or debtor to the
business evidenced by a promissory note.
5. What account title represent the cost being incurred by the business in
generating revenues?
A. Assets B. Expenses C. Liabilities D. Revenues
6. What account title should be use if the business entity collects advance
payment for a service or goods that is yet to be rendered or delivered?
A. Accrued Income B. Accounts Payable
C. Prepaid Income D. Unearned Revenue
7. Which of the following is NOT a current asset among the following items?
A. Cash and cash equivalents
B. Inventory under production
C. Prepaid insurance to be used up this year.
D. A company’s office building bought this year.
8. Which of the following is NOT an asset account?
A. Accrued Income B. Account Receivable
C. Building D. Unearned Income
14
9. Which of the following is a liability account?
A. Building B. Interest Income
C. Interest Payable D. Prepaid Rent
10. Which of the following does NOT belong to income account?
A. Accrued Income B. Interest Income
C. Sales Income D. Unearned Income
11. Fixed assets include all the following, EXCEPT:
A. Oil drill used by the company.
B. company’s highly productive factory building.
C. Office building used for administrative purposes.
D. Cows, chicken, and swine for sale at company’s farm.
12. Lowtech Mechanic Shop sells a bicycle to Martin, a customer who uses
Local Card ( a national credit card, but not issued by a bank). In recording
this sale, Lowtech Mechanics Shop should record___.
A. A receipt cash from Martin.
B. Account receivable from Martin.
C. Account Receivable from Local Card.
D. An acceptable increase in the allowance for doubtful accounts.
13. Unearned service revenue occurs when which of the following occur?
A. Receives cash from a customer after performing a service.
B. Pays cash after receiving a service from a customer.
C. Pays cash before receiving a service from a customer.
D. Receives cash from customer before performing a service.
14. Which of the following will cause owner’s equity to increase?
A. Revenues are less than assets.
B. Withdrawal made by the owner.
C. Revenues are more than expenses.
D. Purchase of additional assets from existing cash of the business.
15. Upon initial investment of cash by the owner, which major accounts will be
affected?
A. Assets Only B. Assets and liabilities
C. Asset’s and owner’s equity D. Only owner’s equity account
15
_____17. Statement I – In chart of account the first number represents the sub-
classification of accounts.
Statement II – 2nd digit shows the major classification of account.
A. Both statements are true B. Only statement I is true
C. Only statement II is true D. Both statements are false
Are you good? If you have questions contact your teacher, but if you think you are
ready for the next lesson, move now to the next topic. Preparing a Chart of Accounts.
16
Key Answer
Explore:
Activity 1 Guess Me
PRETEST
1. Salaries
Activity 1 Activity Expense
2 2. Inventories
1. Assets 1. True 3. Liabilities
2. Liabilities 2. 4. Income
False
3. Revenues 3. True
5. Trademark
4. Notes Receivable 4. True 6. Sales
5. Equipment 5. True 7. Patents
6. False 8. Current Assets
7. True 9. Account
Receivable
8. False
10.Owner’s equity
9. False
10. False
6. Delivery Truck ✓ ✓
7. Furniture & ✓ ✓
Fixture
8. Supplies ✓ ✓
9. Inventories ✓ ✓
10. Land ✓
11. Notes Receivable ✓ ✓
17
Deepen: Activity No. 3 Proper Place
Assets Liability Equity Income Expense
1. Property, plant &
equipment /
2. Water Expense /
3. Office Supplies /
4. Prepaid Rent /
5. Unearned Income
6. Taxes, duties and /
licenses
7. Account Receivable /
8. Capital /
9. Service Revenue /
10. Accounts Payable /
Gauge
1. B. 6. A 11. D 16. A
Deepen
Activity A Activity B
18
Gauge: Prepare a chart of Account
102 Inventory
103 Office Supplies
104 Prepaid Rent Income
Delivery Vehicles 400 Revenue
105
106 Equipment 401 Interest Income
107 Furnitures
Liabilities Expenses
200 Accounts Payable 500 Wage Expense
201 Loans Payable 501 Electricity
Expense
202 Notes Payable 502 Rent Expense
19
References
Books
• Rabo, Tugaz, Salendrez, et.al (2016). Fundamentals of Accountancy
Business and Management, part 1 Vibal Group Inc. (Publishing &
Printing) pages 44- 50, Araneta Avenue, Quezon City.
Websites:
https://www.coursehero.com/file/42134077/TYPES-OF-MAJOR-
ACCOUNTSpptx/ https://www.accountingformanagement.org/chart-of-accounts/
20