Professional Documents
Culture Documents
NATURE OF ACCOUNTS
There are five natures of accounts: 1. ASSETS 2. LIABILITIES 3. CAPITAL 4. INCOMES 5. EXPENSES
ASSETS
They are financial resources bought in business for future benefit. They are of three types. i. Current Assets ii. Fixed Assets iii. Contra Assets Current Assets: Any asset which is, a) In cash form. b) Used or consumed within a year. c) Bought for the purpose of resale. (Merchandise) Examples: Cash, Bank, Account receivable (Oral), Notes receivable (Written), Bills receivable (3rd party), Merchandise inventory, Office supplies or Unused office supplies, Prepaid expenses (Prepaid rent), Income receivable (Interest receivable), Unexpired expense (Unexpired insurance) Fixed Assets: Any asset which is, a) Used or consumed after a year. b) Not bought for the purpose of resale. c) Used in business operation rather than business. Examples: Land, Building, Furniture, Fixture (Fixed or unmovable furniture), Machine, Office equipment, Automobile Contra Assets: They are established in opposite to an asset account. Examples: Allowance for bad debt, Allowance for depreciation
LIABILITIES
They refer to amount of assets bought by others in the business that it has to pay (Others infers to instead of owner). They are also called external equity. They are of two types. i. Current liabilities or short-term liabilities ii. Fixed liabilities or long-term liabilities
THE COUNCIL
Current liabilities: They are paid with full amount within a year. Examples: Account payable (Oral), Notes payable (Written), Bills payable (3rd party), Salaries payable, Rent payable, Interest payable, Unearned income (Unearned rent income), Expense payable (Salaries payable), Dividend payable Fixed liabilities: They are paid with full amount in more than a year. Examples: Bank loan payable, Debentures payable, Debenture payable, Mortgage payable
CAPITAL
It is the amount of assets bought by owner. (Drawing is a contra capital account settled against the capital.)
INCOMES
They are inflow of assets. They increase the capital. Examples: Salary income, Rent income, Commission income, Sales, Purchase discount, Purchase return and allowance
EXPENSES
They are outflow of assets. They decrease the capital. Examples: Wages expense, Salaries expense, Rent expense, Depreciation expense, Theft expense, Used office supplies Purchases, Sales discount, Sales return and allowance
ACCOUNTING EQUATION