Account Titles

Topics: Balance sheet, Generally Accepted Accounting Principles, Asset Pages: 8 (1893 words) Published: May 1, 2012
The Chart of Accounts
The increases and decreases in accounting element as affected by a business transaction are recorded in a device called account name, account title or account. Each accounting element is composed of several accounts which describe the related economic transactions and events. To maintain uniform account name, the business must have a listing of all the accounts it uses to record economic transactions. This listing of all accounts is called “Chart of Accounts.”

The Chart of accounts is usually arranged in the financial statement order - that is, asset accounts first, followed by liability accounts, owner’s equity, revenues and expenses accounts. An example of chart of accounts could be listed as follows:

Description of Account Titles
Accounting uses several account titles to describe economic transactions and events.

The Asset Accounts
Assets are resources or things of value owned by an enterprise. Generally, they are recorded in the books of accounts with a normal debit balance. The asset accounts are classified into two main categories, the current assets and the noncurrent assets.

Current Assets — an asset should be classified as a current asset when any of the following criteria4 are met: 1.It is expected to be realized, or is held for sale or consumption in the normal course of the enterprise’s operating cycle; or 2.It is held primarily for trading purposes or for the short-term and expected to be realized within twelve months of the balance sheet date; or 3. Is cash or a cash equivalent which is not restricted in its use.

It can be inferred that if an asset does not meet any of the criteria above, it shall be classified as noncurrent~asset.

The operating cycle of an enterprise is the time between the acquisition of materials entering into a process and its realization in cash or an instrument that is readily convertible into cash.5

Some of the currents assets that are commonly used are:

oCash — any item on hand with ‘monetary value that a bank will accept for deposit and all amounts currently on deposit with the bank in the name of the business. This includes coin and currency, personal checks, money orders, traveler’s checks made payable to the business and bank drafts. Also included are any funds that are currently on deposit at a bank and readily available as checking and savings account.

oCash Equivalents — investments that are readily convertible to cash and with short maturity of three months or less from the date of acquisition.6 They are available upon demand (unrestricted). Examples are three-month maturity treasury bills, money market funds, commercial papers, and the like.

oTemporary Investments — short-term investments with a term of more than three months but within one year. Examples are current trading securities, current available for sale securities, etc.

oAccounts Receivable — the amounts collectible on open accounts of the customers. These represent debtor’s oral promise to pay certain amount to the business and the right of the business to collect certain amount in peso. Examples are receivables from sales of goods or services.

·Notes Receivable — a promissory note received by the business from its debtors and/or customers. A promissory note is a written promise to pay a certain amount on specified or determinable date.

·Allowance for Bad Debts or Provision for Doubtful Accounts — this is an amount estimated uncollectible on receivable in compliance with the principle of conservatism. It is credited to serve as a contra account for the related receivable. Other terms used to describe this account are “allowance for uncollectible accounts” and “allowance for bad debts.”

·Accrued Interest Receivable — the interest earned on note receivable but not yet received in cash.

·Inventories — assets held for sale in the normal operation of the business, in the process of production for sale, or in the form of materials...
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