I.

Elements of a Balance Sheet

Basic Accounting Equation: Assets = Liabilities + Owner’s Equity

Assets - Economic resources owned by a business which will benefit future operations.
Liabilities - Debts or obligations of the business which are to be paid in cash or in the form of other
non-cash assets, or are to be settled by rendering some form of services.
Owner’s Equity - The residual claim of the owner in the assets if the business after satisfying the
claim of the creditor.
A. ASSETS
1.) Current Assets - Includes cash and other assets that is convertible into cash or will be sold or
consumed within one year or one operating cycle, whichever is longer.
Examples:
 Cash – Includes coins, currencies, money orders, bank drafts, checks, bank deposits,
and other cash items which are readily available for use in operations.
 Marketable Securities – short term investments
 Accounts Receivable - Claims of the business against clients or customers usually
arising from services rendered or from sales of goods.
 Interest Receivable – The additional charge of interest collected by the business on
interest bearing promissory note.
 Prepaid Expenses – Expenditure for operations that is prepaid or paid in advance.
 Inventory – can be raw materials (supplies), work in process or finished goods.
2.) Fixed Asset – Asset are classified as fixed assets if they provide capacity for the firm.
Examples:
 Land – Real estate owned by a business and used in operation.
 Building – Any building constructed or acquired for use for use in operation.
 Office Equipment – Refer to typewriters, cash register, calculators, computers, and
any other machines or equipments used in the office.
 Office furniture – Refers to tables, chairs, counters, cabinets, and any other furniture
items used in the office.
 Transportation vehicles – Includes cars, trucks, jeeps, motorcycles, bicycles, and any
other vehicles used for transportation purpose of the business.
 Accumulated Depreciation – Depreciation is the allocation of the cost of property
item over its useful life. Accumulated depreciation is the amount of depreciation
provided over a period of time.
 Long-Term Investment – Refers to acquisition of stocks, bonds, real estate, or other
assets in order to produce added revenue to the business
3.) Other Assets – Assets that have no physical existence but which give the business long-term
rights as a results of which the business enjoys or preferred or exclusive position in the market
place. Also known as intangible assets.
Examples: copyrights, trademarks, trade names, patents, goodwill, lease rights.
B. LIABILITIES
1) Current Liabilities – Debts or obligations of the business that are expected to be paid within
one year using current resources.
Examples:
 Accounts Payable – A liability representing an amount owed to creditors, usually
arising from the purchase of merchandise, materials, and or supplies.
  Notes Payable – A liability evidenced by a promissory note.
 Interest Payable – The amount additional due on a promissory note as interest.
 Accruals or other payables – Obligations of the business to pay for the cost of
operations. Such as accrued expenses for salaries and or rent, etc.
2) Long-term Liabilities – Debt or obligations of the business that are payable after one year.
Examples:
 Long-term notes payable – Notes payable that are due after one year.
 Mortgage Payable – Obligations which are evidence by a mortgage of real estate and
are usually long term.
 Long term debts
C. OWNER’S EQUITY
Examples:
 Owner’s Capital – Investment made by the proprietor.
 Owner’s Drawing – Refer to withdrawals made by the proprietor in anticipation of the
earnings of the business. Can also be referred to as dividends.

II. Elements of an Income Statement

Basic Income Statement Format: Revenue – Expenses = Net Income or (Net Loss)

1) Sales Income/Revenue - The term that is generally used to refer to any kind of income generated
from sales
Service Income/Revenue -The term that is generally used to refer to any kind of income from
services rendered by a service business.
Other Income - Income earned from sources other than from the principal line of service rendered.

2) Operating Expenses - These are the cost of goods or services that are used or consumed in the
operation of a business.
Common Operating Expenses:
 Salary/Wage Expense - This refers to the cost of expenses rendered by the employees of the
business.
 Rent Expense - This refers to the cost of renting an office space used by a business in its
operation.
 Office Supplies Expense - This refers to the cost of office stationery, coupon band, carbon
paper, typewriter ribbons, envelops, pencils, ball pens, and other office supplies.
 Light, water, and telephone expense - This refers to the cost of electricity, water consumed
and telephone services used in the business operations.
 Transportation Expenses - This refers to the cost incurred by officers and employees for
transportation in the conduct of operation, such for client or customer calls.
 Gas and Oil Expenses - This refers to the cost of gas and oil consumed whenever
transportation vehicles are used in official business functions.
 Depreciation Expense - This refers to the portion of the cost of a property item that is
charged against current operations.
 Insurance Expense - This refers to the premium chargeable to current year’s operation on fire
insurance coverage, motor vehicles comprehensive insurance coverage.
 Miscellaneous Expenses - Any other cost of conducting business that are not significant
enough to be reported separately may be grouped together in this account.