Fundamentals of Accountancy, Business, &

Management 1
Name: _____________________________ Grade: ______________
Date: ______________________________ Score: ______________

CONTEXTUALIZED LEARNING ACTIVITY SHEET

Week 4: Types of Major Accounts and the Chart of Accounts

I. Most Essential Learning Competencies (MELCs):

1. Discuss the five major accounts
2. Prepare a Chart of Accounts

Hi there! Now that you are familiarized with the accounting

equation, let us now delve deeper on the five major accounts and
the chart of accounts. In this contextualized learning activity
sheet, you will be able to apply what you have learned from your
modules in Fundamentals of ABM 1. Are you ready? Let’s start!

II. Background Information for Learners

For accounting, an account is a record in a system of accounting in which

a business records the movements, increases, and decreases, as evidence of
accounting transactions.
An account may be depicted through a “T-account.” A “T-account” is called
as such because it resembles the letter “T.”

The Five Major Accounts of Accounting

 The five major accounts are also called the elements of the financial
statements.

The five major accounts can be classified according to the financial

statements where they appear and its nature.
Accounts under the balance sheet account or real accounts are assets,
liabilities, and owner’s equity, while under income statement account or
nominal accounts are revenues and expenses.

Classification in the Financial

Classification to Its Nature:
Statement:
• The balance sheet or the statement • Real accounts or permanent
of financial position is a formal accounts are the accounts where
statement that shows the financial the balance is not closed at the end
condition of the business. It shows of the accounting year and they are
the balances of assets, liabilities carrying forward to the next
and owner’s equity accounts as of a accounting period.
particular period. • Nominal accounts or temporary
• The income statement or the accounts are accounts where the
statement of comprehensive balance is closed at the end of the
income is a formal statement accounting period and does not
showing the revenues and expenses carry forward to the next
of a business for the period. accounting period.

The Balance Sheet or Real Accounts

A. The Asset Accounts
Cash – this includes cash on hand (bill, coins, checks, money orders, or band drafts), cash deposited in
bank (savings account or checking account) and cash fund (petty cash or payroll fund) which are
unrestricted in use.

Accounts Receivable – this refers to the amount of money owed by the customers to the business. This
arises from the business rendering services or selling goods to customers.

Allowance for Bad Debts – (or allowance for doubtful accounts) this is a contra-asset or a valuation
account which refers to the portion of accounts receivable that is estimated to be uncollectible at the end
of a particular accounting period.

Notes Receivable – this represents the amount of money owed by the customer or debtor to the business
evidenced by a promissory note.

Accrued Interest Receivable – the interest earned on note receivable but not yet received in cash.
Inventories – this represents assets held for sale in the ordinary course of business. In manufacturing,
these are the materials or supplies to be used in the production process.

Prepaid Supplies – this represents supplies which remain unused at the end of the accounting period.

Prepaid Rent – this refers to an advance payment made by the business to cover for future rental
payments.

Prepaid Insurance – it refers to the advance payment for the insurance of the business.

Land – this refers to the physical site owned by the business where the building is situated. It is not
subject to depreciation.

Building – this refers to the physical structure owned and used by the business to conduct its business
operation.

Equipment – this refers to the machines used in the business and they include photocopying equipment,
computers, laptops, ring binder, laminating machines, delivery vehicles, and vans, among others.

Furniture and Fixtures – this represents assets such as tables, chairs, filing cabinets and display racks.

Accumulated Depreciation – this is a contra-asset account which refers to the aggregate portion of the
total cost of property, plant and equipment that has been charged to depreciation except land. Property,
plant and equipment is an account that refers to land, building, equipment and furniture

Intangible Assets – are assets that have no physical existence but provides the owner some selling and
operational advantage over competitors. Examples of intangible assets are goodwill, patent, franchise,
copyright and trademark.

Amortization – this is a contra-asset or valuation account which refers to the allocation of the acquisition
cost of an intangible asset over its useful legal or accounting estimated life.

B. The Liability Accounts

Accounts Payable – this refers to open accounts which represent the amount of money owed by the
business to creditors or suppliers.

Notes Payable – this represents the amount of money owed by the business to the supplier or creditor
evidenced by a promissory note.

Loan Payable – this represents the amount of money borrowed by the business from third party creditors.
 Mortgage Payable – this represents the amount of money borrowed by the business from a bank or a
lending institution which is secured by collateral. It is usually payable more than one year.

Unearned Revenues – this represents cash collected by the business in advance for a service or good that
is yet to be rendered or delivered.

Accrued Liabilities – are the amount owed by the business but not yet paid. Examples are Salaries
Payable and Utilities Payable, SSs Premiums Payable and other payables incurred but not yet paid.
•Accrued Salaries Payable/Salaries Payable – the amount of salaries of the employees but not yet paid.
•Accrued Utilities Payable/Utilities Payable – refers to the costs associated with the usage of electricity,
water, and communication of the business but not yet paid
•SSS Premium Payable – representative of the amount of employee and employer contribution to SSS
which are not yet remitted to SSS.
•Withholding Tax Payable – the amount of income tax withheld from the salary of employee in behalf of
BIR that the employer has to remit to BIR on the specified due date.

C. The Owner’s Equity Accounts

Owner’s Equity is described as owner’s capital (sole proprietorship), partner’s capital (partnership) and
shareholder’s equity (corporation). It is simply the capital invested by the owners. The account title to
be used is depend on the form of business.
•Owner’s Drawing – is a temporary account that refers to the amount taken by the owner from the business.
This is closed to the capital account of the owner at the end of accounting period.

The Income Statement or Nominal Accounts:

A. The Revenue Accounts

Sales – this represents the earnings made by any business involved in selling goods or merchandise.

Service Revenue – this refers to the earnings made by any business involved in rendering services. The
term “revenue” is used when earnings arises from the main line of operation of the business.

Professional Fees – this represents earnings made by professionals or experts from rendering services to
their clients. Professionals include lawyers, doctors, and certified public accountants, among others.

Interest Income – this represents interests earned on notes received and bank interest on savings. Income
is used when the source of income is not the main line operation of the business.

Sales – this represents the earnings made by any business involved in selling goods or merchandise.

Service Revenue – this refers to the earnings made by any business involved in rendering services. The
term “revenue” is used when earnings arises from the main line of operation of the business.

Professional Fees – this represents earnings made by professionals or experts from rendering services to
their clients. Professionals include lawyers, doctors, and certified public accountants, among others.

Interest Income – this represents interests earned on notes received and bank interest on savings. Income
is used when the source of income is not the main line operation of the business.
 B. The Expense Accounts:
Cost of Sales – this refers to the cost of merchandise or goods that were sold during a particular accounting
period.

Salaries Expense – this refers to the salaries paid to the permanent and full-time employees.

Wages Expense – this refers to costs of the service rendered by workers who are paid on an hourly or
based on output.

Rent Expense – it refers to the cost of occupying rental property.

Supplies Expense -this refers to the amount of supplies used.

Insurance Expense – the amount of insurance policy incurred during the current period.

Utilities Expense – this refers to the costs of electricity, water, and communication for a particular
accounting period.

Taxes and Licenses Expense – this represents costs incurred to register the business, to acquire the permit
to operate, and to settle taxes.

Bad Debts Expense – (or Doubtful Accounts Expense) this refers to the amount of accounts receivable that
is estimated as uncollectible and is recognized as an expense in the current accounting period.

Depreciation Expense – this refers to the allocated portion of the cost of property, plant and equipment
charged to expense in the current accounting period.

Amortization Expense – is the write-off of an intangible

Why do we need to study the five major accounts and its examples? Simply, to
identify the account titles affected in each business transaction.
For example: The business paid P870 for the business permit. The account titles
affected in the given transaction are:
1. In “the business paid P870” is Cash; and
2. “Business permit” is an Expense, to be specific it is Taxes and Licenses
Expense.

A chart of account refers to a listing of all account titles used in the business to
serve as guide for uniformity in the use of all accounts in recording business transactions.
The five major accounts and the account titles under each type are arrange in the order of
assets, liabilities, owner’s equity, revenues, and expenses.

• Assets are arranged as current assets first followed by the non-current assets.
• Liabilities are also positioned in current liabilities followed by non-current
liabilities.
• Every account title has its own numerical code or account number. The assigned
codes are: 1 for all assets; 2 for all liabilities, 3 for owner’s equity; 4 for all
revenues; and 5 for expenses.
III. Activities
I. TRUE OR FALSE. Write TRUE if the statement is correct and FALSE if the statement
is incorrect.

______________ 1. The account title Owner’s, Capital can also be used for business
that are corporations.
______________ 2. Liabilities are anything that represents claims against the asset of
the customers.
______________ 3. Unearned revenues account is a revenue account.
______________ 4. A nominal account does not carry forward to the next accounting
period.
______________ 5. Accrued interest payable is used for the paid interest for the
period.
______________ 6. All assets under property, plant and equipment are depreciable.
______________ 7. Sales refers to the earnings made through rendering service.
______________ 8. Assets have normal debit balance.
______________ 9. Revenues have normal credit balance.
______________ 10. Account titles can be arranged even without numerical code.
II. CHART OF ACCOUNTS. The following are the account titles used by ABM Co.:

Required: Prepare the chart of accounts using two digits number.

ABM Co.
Chart of Accounts

ACCOUNT ASSETS ACCOUNT OWNER’S EQUITY

NO. NO.

ACCOUNT REVENUE
NO.

ACCOUNT LIABILITIES ACCOUNT EXPENSES

NO. NO.