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ASSETS = LIABILITIES + OWNER’S EQUITY parties such as: Rent Receivable, Interest
Assets Receivable, Dividend Receivable, etc.
Are resources owned and Allowance for Bad Debts - a contra-asset
Examples: cash, receivables, supplies, equipment, account deducted from Accounts Receivable. It
inventory represents the estimated uncollectible amount of the
Liabilities receivable.
Are financial obligations 4. Inventories
Examples: Payables, Unearned Income Inventories are assets that are held for sale in the
Equity normal operations of the business. A service business
The residual interest in the assets of the entity after normally has no inventory account.
deducting all its liabilities Merchandising businesses normally maintain one
• Includes: inventory account – Merchandise Inventory.
Drawings Capital Manufacturing businesses have several
Expense Profit/income inventories: Raw Materials Inventory, Work in Process
Loss revenue Inventory, Finished Goods Inventory, and Factory
Supplies Inventory.
Financial Statements 5. Prepaid Expenses or Prepayments
Statement of Financial Position Prepayments consist of costs already paid but are yet to
• Consists the three major components: be used or incurred. Common prepaid expense
Assets accounts include: Office Supplies, Service
Liabilities Supplies, Prepaid Rent, and Prepaid Insurance.
Equity
Assets are classified into two: current assets and Non-Current Assets
non-current assets. 1. Property, Plant, and Equipment (PPE) also known as
• Current assets are those that are expected to Fixed Assets
be realized or used within the company's - PPE includes tangible assets that are expected to
normal operating cycle or 1 year, whichever is be used for more than one year. PPE accounts
longer. In essence, current assets are short- include: Land, Building, Machinery, Service
term in nature. Equipment, Computer Equipment, Delivery
• Non-current assets, on the other hand, are Equipment, Furniture and Fixtures, Leasehold
properties held for a long period of time (i.e. Improvements, etc.
more than 1 year). - Take note that land that is not used by the
business in its operations but is rather held for
Current Assets appreciation is not part of PPE but of investments.
1. Cash and Cash Equivalents - Accumulated Depreciation - a contra-asset
Cash on Hand - consists of un-deposited collections account deducted from the related PPE account.
Cash in Bank - made up of bank accounts that are It represents the decrease in value of the asset
unrestricted as to withdrawal due to continuous use, passage of time, wear &
Short-term cash funds such as Petty Cash Fund, Payroll tear, and obsolescence.
Fund, Tax Fund, etc. 2. Long-Term Investments
Cash Equivalents are short-term investments with very - Investment in Long-Term Bonds, Investment in
near maturity dates making them assets that are "as Associate, Investment in Subsidiary, Investment
good as cash". Property, Long-Term Funds; these are investments
2. Trading Securities or "Financial Assets at Fair Value" that are intended to be held for more than one
Trading Securities are investments in stocks that are year.
held with the purpose of trading (speculative 3. Intangibles
investments) - An intangible has no physical form but from which
3. Trade and Other Receivables benefits can be derived and its cost can be
Accounts Receivable - receivables from customers measured reliably.
arising from rendering of services or sale of goods - Intangibles include Patent for
Notes Receivable - receivables from customers which inventions, Copyright for authorship,
are backed up by promissory notes compositions and other literary
works,Trademark, Franchise, Lease Rights,
and Goodwill.
Non-Current Liabilities
1. Long-Term Notes Payable - obligations evidenced by
promissory notes which are to be paid beyond 1 year;
also commonly referred to as Loans Payable
2. Bonds Payable - liabilities supported by a formal
promise to pay a specified sum of money at a future
date and pay periodic interests. A bond has a stated
face value which is usually the final amount to be paid.
Bonds can be traded in bond markets.
For serial bonds (bonds paid in installments), the
portion which is to be paid within one year is
considered as a current liability; the rest are non-
current. The same rule applies to other long-term
obligations paid in installments.
3. Mortgage Payable - long-term obligation to a bank or
other financial institution, secured by real properties of
the business
4. Any other long-term payable, i.e. any obligation that
is to be paid beyond 1 year