MODULE 9: TYPES OF MAJOR ACCOUNTS

Assets=Liabilities+Capital (Owne r ' sEquity)

Assets – anything that adds value to the business in terms of present or future money, funds or
perceived value
Appreciating Asset – assets whose values increases
Depreciating Asset – assets whose values decreases

Illustration #1
The Mahalimuyak Candle Factory owner Frances received a bulk order amounting to
Php 50 000.00 and was already paid in full. The general journey entry of this transaction is as
follows:
Date Account Debit (Php) Credit (Php)
25 August 2017 Cash 50 000.00
Sales 50 000.00
Aside from cash, other forms of asset are accounts receivable; property, plant, and
equipment (PPE); and prepaid expenses.

Illustration #2
The Mahalimuyak Candle Factory owner delivered a bulk order amounting to Php 100
000.00 and received from the buyer Php25 000.00 down payment. The balance is to be paid
after 30 days. The general journal entry for this transaction is as follows:
Account Debit (Php) Credit (Php)
Cash 25 000.00
Accounts receivable 75 000.00
Sales 100 000.00

Illustration #3
The Mahalimuyak Candle Factory owner purchased equipment amounting to Php 180
000.00. The general journal entry for this transaction is as follows:
Account Debit (Php) Credit (Php)
Equipment 180 000.00
Cash 180 000.00

Illistration #4
The Mahalimuyak Candle Factory owner paid an annual insurance premium for her
equipment and factory amounting to Php 12 000.00 At the end of the accounting period, only
Php 5 000.00 insurance premium was used up or has expired. The unexpired portion of the
insurance premium amounted to Php 7000.00. The general journal entry for the unexpired
portion of the insurance is as follows:
Account Debit (Php) Credit (Php)
Prepaid Insurance 7 000.00
Insurance Expense 7 000.00

Liabilities – anything that results in reducing the value of something

Illustration
In the same example of the Mahalimuyak Candle Factory, suppose the owner took a bank
loan to purchase the technology of a machine that can produce the quality of candles she
envisioned. She has to mortgage a land that has been idle for some time. She got a loan of
Php 350 000.00 with 10% interest per annum over the next two years.
This transaction is reflected in the general journey entry as follows:
Date Account Debit (Php) Credit (Php)
31 August 2017 Cash 350 000.00
Loan Payable 350 000.00

Other types of liabilities: accounts payable, insurance and taxes, mortgage payments

CAPITAL (owner’s equity)

- the equivalent of the net worth of an individual mathematically, but it refers to the overall book
value of the business or the company.
- can be considered as start-up money or seed money from which the business will eventually
grow.
- can be considered as the owner’s exposure to the business if it is a sole proprietorship.

Illustration 1:
The Mahalimuyak Candle Factory owner Frances put in Php 150 000.00 as her capital in
the business. The general journal entry for this transaction is as follows:
Date Account Debit (Php) Credit (Php)
25 August 2017 Cash 150 000.00
Capital - Frances 150 000.00

Illustration 2:
Mahalimuyak Candle Factory
Balance Sheet
As of 31 August 2017
(In Peso Amount)
Assets Liabilities
Current assets Current liabilities
Cash 150 000.00 Long Term Liabilities 350 000.00
Equipment 350 000.00 Total Liabilities 350 000.00
Owner’s Equity 150 000.00
Total Assets 500 000.00 Total Liabilities and
Owner’s Equity 500 000.00

Activity 5:
1. Prepare a balance sheet for the following cases.
a. Ready to Drink Water Station started out in a subdivision to answer a need of the residents for
clean water aside from putting on filters in their faucets. The owner, Henry Fernando, raised a
capital of more than a million pesos to purchase the machines necessary to produce ready-to-
drink water which he sells in large containers. He runs the station by hiring two sturdy delivery
men who ise tricycles to deliver the water containers and who he pays Php 350.00 daily. His shop
is open from Mondays to Saturdays, 8 am to 6 pm.
Mr. Fernando sells water in a 5-gallon round container for Php32.00 and in a 5-gallon
square container for Php 34.00. For the month of April 2017, the water station was able to sell
800 round containers of water and 900 square containers of water. Henry has gotten a space to
house his water operations for Php15 000.00 with Php4 500.00 for water and electricity.

b. Pompadour Cosplay Costume Rental is owned by siblings Maria Solange and Maria Beyonce.
The business stems from the owners’ love for cosplay. They started by making a few costumes
and no they have a full-time business in the field. Their initial capital was set at Php 100 000.00.
They have rented a place near the city hall right in the center of the city and they have
become a go-to place for any costuming needs in the area.
They have hired a full-time seamstress and a full-time cutter to execute their designs. To
manage the store they hired a store attendant who doubles up as the cashier.
For the month of October 2017, they have the following transactions:
Payroll: Seamstress – Php350.00/day for 6 days per week
Cutter – Php450.00/day for 3 days per week
 Store Attendant – Php250.00/day for 6 days per week
Supplies of clothing materials, embellishments, threads, etc. – Php8 500.00
Supplies of other things (hangers, clips, plastic bags) – Php 2 500.00
Rental – Php8 500.00
Utilities – Php2 850.00
Costume Rentals – Php 20 858.00
Costume rental receivable - Php6 850.00

c. Gadgets and More was envisioned by partners Miguel and Tony Espiritu as the answer to the
people’s need for anything related to gadget maintenance – repairs, batteries, accessories, and
more. They opened the shop in one corner of the strip mall and have young people making up
most of their clientele.
For the month of February 2017, the following transactions took place in the shop:
Rental Payment – Php 12 500.00
Utilities – Php 3 500.00
Sales – Php 18 500.00
Payroll for two store personnel – Php 16 500.00
Both Miguel and Tony have put in Php 150 000.00 ech of their savings to have this mainly
gadgets maintenance shop dream come true.
2. Answer the following questions.
1. In all of the cases in Activity No. 1, how would you report the financial status of each business
to the owner(s) aside from the numbers in the balance sheet?
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2. What would increase the liabilities of a business entity? Expound your answer by citing specific
examples.
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3. What would decrease the liabilities of a business entity? Expound your answer by citing
specific example.
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