Basic Finance

• The chart of accounts includes accounts receivable, provision for doubtful account, accounts payable, and notes receivable.
• The valuation accounts or contra accounts in the chart of accounts are designated with the suffix "A" such as 102-A, 107-A etc.
• The net realizable value of an asset is the amount that one can reasonably expect to collect or realize.
• In a sole proprietorship business, the owner's equity in assets can be amply kept track by a single capital account.
• In a partnership, individual "capital" accounts are maintained for each partner, and "drawing" accounts are also maintained to preserve the recorded original investment by each partner in the "capital" account.
• The term "inventory" is used only in connection with merchandise for sale.
• The account titles in the chart of accounts for Ayot Transport Company include cash on hand and in banks, accounts receivable-trade, provision for doubtful account, notes receivable-trade, accrued interest receivable, unused office supplies, prepaid insurance, input VAT, land, building, buses, and furniture and fixtures.
• The account "Cash on Hand and in Banks" in the chart of accounts refers to currency, bills, and coins whether on hand or in banks, which are readily available for use by the firm as working capital.
• The account "Accounts Receivable-Trade" in the chart of accounts is used to refer to collectibles from customers arising from trade or business.
• The account "Provision for Doubtful Accounts" in the chart of accounts is a valuation or contra-asset account and represents the estimated amount of receivables that may not materialize due to default by customers.
• The account "Notes Receivable-Trade" in the chart of accounts is similar to accounts receivable except that the receivable is supported or evidenced by a promissory note, which may be interest or non-interest bearing.
• The account "Accrued Interest Receivable" in the chart of accounts is used to refer to interest earned but not yet collected or received by the firm.
• The account "Unused Office Supplies" in the chart of accounts represents office supplies still on hand or not yet consumed.
• The account "Prepaid Insurance" in the chart of accounts represents insurance premiums paid in advance.
• The account "Input VAT" in the chart of accounts is used to accumulate information about taxes arising from purchases of goods or services.
• The account "Land" in the chart of accounts refers to real properties owned and used in trade or business by the firm.
• The account "Building" in the chart of accounts refers to the physical plant, structure, or office being used by the firm in conducting its trade or business.
• The account "Buses" in the chart of accounts refers to transportation equipment used for transporting passengers or cargo and is the main source of revenue by the firm.
• The account "Furniture and Fixtures" in the chart of accounts refers to tables, chairs, cabinets, and furnishings used in business by the firm, which are subject to depreciation.
• Repairs and Maintenance are expenses incurred for the up-keep or ordinary minor of an asset.
• Accumulated Depreciation is an account that represents the extent of accumulated depreciation or reduction in the value of a depreciable asset over time through use or non-use.
• Salaries and Wages is an account that represents expenses for the use of labor or manpower usually paid to employees of the firm.
• Gas and Oil Expense is an account that represents consumptions of gasoline and oil products'during the year.
• Interest Expense refers to the amount incurred for the use of credit, usually arising from loans or interest bearing promissory notes.
• Accrued Interest Payable is an account that refers to interest incurred but not yet paid.
• Office Supplies Expense is an account that represents the consumed or portion of office supplies during the year.
• Unearned Fares is an account that represents payment received in advance for goods not yet delivered or services not yet performed, hence it is a liability.
• Revenue and Expense Summary is a temporary summarizing account, which is used only at year-end to close all the nominal accounts and transfer their balances to the capital account.
• Output VAT is an account prescribed by the BIR used to accumulate taxes arising from sales of goods or services subject to value added taxes.
• These assets are updated at the end of the accounting period by an adjusting entry increasing the accumulated depreciation account.
• Depreciation Expense is an account that represents the estimated yearly charge or reduction in the value of a depreciable asset.
• Rent Expense is an account used to refer to expenses incurred for the use of space or equipment.
• Doubtful Account Expense is an account that represents the estimated amount of loss arising from non-payment of debt by customer debtors.
• Insurance Expense is an account that represents the utilized or expired portion of an insurance policy.
• Mr. E. Ayot, Capital is an account that represents the capital investment of the owner as well as the extent of his interest in the firm.
• Payables arising from non-trade activities or transactions are labeled accordingly.
• Utilities Expense is an account used to refer to expenses incurred for electricity, water, communications, and other services charged by utility companies.
• These assets are depreciable and their value declines each year.
• Accounts Payable-Trade is an account that represents liabilities or payables arising from trade or business.
• Notes Payable is an account similar to accounts receivable trade except that the obligation or payables is supported or evidenced by a promissory note, which may be interest or non-interest bearing.