Fabm 1 - Week 4
Fabm 1 - Week 4
-resources controlled by the entity as a result of • Accounts Receivable are oral promises to
past events and from which future economic entity to receive cash at a later date. Usually
benefits are expected to flow to the entity. arise from the normal course of business
such as selling of goods or delivering
LIABILITIES
services.
-obligations of the company that needs to fulfill to
• Notes Receivable are amounts due from
other companies.
clients supported by promissory notes.
OWNERS EQUITY
• Inventories are assets held for resale.
-are the owner’s claims in the business. It is the
• Supplies are items purchased by an
residual interest in the assets of the enterprise
enterprise which are unused as of the
after deducting all its liabilities.
reporting date.
REVENUE
• Prepaid Expenses are expenses paid in
-The money received by individual or business, advance. They are assets at the time of
usually in exchange for providing a goods and payment and become expenses through the
services or through investing capital. It increases passage of time.
owner’s equity.
• Inventories are assets held for resale.
EXPENSES
• Supplies are items purchased by an
-It is the cost of operations that the company incurs enterprise which are unused as of the
to generate revenue. As the popular saying “It cost reporting date.
money to make money”.
• Prepaid Expenses are expenses paid in
advance. They are assets at the time of
payment and become expenses through the
CLASSIFICATION OF ASSETS
passage of time.
1. Current Assets - An entity shall classify an asset
• Accrued Income is revenue earned but not
as current when:
yet collected.
a) it expects to realize the asset, or intends
• Short term investments are the
to sell or consume it, in the entity’s normal
investments made by the company that are
operating cycle;
intended to be sold immediately in less than
b) it holds the asset primarily for the a year.
purpose of trading;
2. Non- Current Assets are assets that cannot be to the supplier or banks evidenced by a
easily and readily converted into cash and cash promissory note.
equivalents. Non-current assets are also termed
• Mortgage Payable – this represents the
fixed assets, long-term assets, or hard assets.
amount of money borrowed by the business
• Property, Plant and Equipment are long- from a bank or a lending institution which is
lived assets which have been acquired for secured by collateral.
use in operations. This are tangible assets,
EQUITY/ OWNER’S EQUITY
meaning they are physical in nature or can
be touched. (examples: Building, Table & This is the portion of the total assets that the
chairs, sofa, printers, laptop, filing cabinet, business owner fully owns. Equity also referred to
etc.) as Net worth.
• Long Term Investment - other investment • Capital - is the value of cash and other
made by the firm that will benefit company assets invested in the business by the
for several years. Example: Investment in owner of the business.
Equity Securities
• Drawing - is an account debited for assets
• Intangible assets – these are assets that are withdrawn by the owner for personal use
identifiable, non- monetary assets without from the business.
physical substance. Example: Trademark,
Goodwill, Patents, Copyright.
REVENUE/INCOME
CLASSIFICATION OF LIABILITIES
increases economic benefits during
1. Current Liabilities - Liabilities that falls due
accounting period in the form of inflows of
within one year (12 months) after the reporting
cash or other assets or decreases of
date of Financial Statement. Examples: Accounts
liabilities that result in increase in equity.
Payable, Utilities Payable and Unearned Income.
include revenue and gains.
• Accounts Payable are amounts due, or
payable to, suppliers for goods purchased • Service Revenue – this refers to the
on account or for services received on earnings made by any business that is into
account. rendering services. The term “revenue” is
used not “income” to distinguish that such
• Notes Payable are amounts due to third
an earning arises from the main line of
parties supported by promissory notes.
operations of the business.
• Accrued Expenses are expenses that are
• Interest Income - this represents interest
incurred but not yet paid (examples:
credited by the bank to the account of the
salaries payable, taxes payable)
business arising from bank deposits.
• Accrued Expenses are expenses that are
incurred but not yet paid (examples: ✓ Note: The term “income” was used since
salaries payable, taxes payable) earnings interest from bank deposits is not
the main line operation of the business.
• Unearned Income is cash collected in
advance; the liability is the services to be • Sales – represents the earnings made by
performed or goods to be delivered in the any business that is from selling of goods or
future. merchandise.
2. Non- Current Liabilities - Liabilities that do not • Professional Fees – this represents earnings
fall due within one year-end date. Those accounts made by the professionals or experts from
that is due after 12 months are considered as non- rendering services to their clients. Like:
current liabilities. Examples: Notes Payable, Loan Lawyer, Doctors, Teacher, Certified Public
payable, mortgage payable. Accountants, etc.