3 The Accounting Equation

and the Double-Entry System

Objectives of the Lesson
1. To know the parts of an information system
2. To understand the accounting information system and its types
3. To know the stages of data processing
4. To identify the elements of financial statements
5. To know the account, the accounting equation, normal balance of an account,
accounting events and transactions, and the typical account titles used
6. To understand how debits and credits work

Companies like Microsoft, the software giant and Deloitte & Touche, the big US
accounting firm, use Vervex’s EnGage 2.0 to manage large projects that involve
employees, subcontractors and consultants worldwide. The software allows team
members to report on their progress via the corporate intranet, as well as generate
invoices and timesheets that can be easily accessed by corporate headquarters. Intranet
is a version of the Internet internal to a specific company and is privately controlled.

Vervex Technologies established in 1994 is owned by Price Givens. This Irvine,

California-based company develops database and corporate intranet applications that
help project managers keep track of offsite workers’ projects.

Givens and his team of software developers started by producing project management
applications for accountants. But with Given in Irvine and the company’s software
developers in Bellevue, Washington, geographic distance interfered with efficient
collaboration. Givens knew an intranet could be the ultimate solution.

Vervex’s newest timekeeping software program, FSBTime, was designed specifically for
accountants, architects and others who bill clients for their time. However, 27-year old
Givens was surprised to find out that most visitors to Vervex’s Web site were actually
other software companies. “One of our biggest customers has all their software
developers in India and all their managers in California,” Givens said. Givens was able
to create a niche by addressing specific needs such that sales in 1998 was US$1.2
million. 1999 projections is US$2.5 million. Adapted from: Business Start-Ups, April
1999.

Givens is helping business entities generate timely accounting information regarding

activities or events which are important to the continued existence of the business. His
software products ensure that his clients have the accurate and relevant data needed
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by the system to be able to accumulate the information necessary for timely accounting
reports.

PARTS OF AN INFORMATION SYSTEM

An information system is a collection of people, procedures, software, hardware and

data which works together to provide information essential to running an organization.

People. People are competent end users working to increase their productivity. End
users use hardware and software to solve information-related or decision-making
problems.

Procedures. Procedures are manuals and guidelines that instruct end users on how to
use the software and hardware.

Software. Software is another name for programs – instructions that tell the computer
how to process data. There are two kinds of software:

System Software. System software is background software that helps a

computer manage its internal resources. An example is the operating system.
Windows (XP, Vista and 7) and Linux are popular operating systems.

Application Software. Application software performs useful work on general-

purpose problems. The two types of application software are basic applications
and advanced applications.

Basicapplications include:
• Browsers – navigate, explore, find information on the Internet.
• Word processor – prepare written documents.
• Spreadsheet – analyze and summarize numerical data.
• Database management system – organize and manage data and
information.
• Presentation graphics – communicate a message or persuade other people.
Advanced applications include:
• Multimedia – integrate video, music, voice, and graphics to create
interactive presentations.
• Web publishers – create interactive multi-media Web pages.
• Graphics programs – create professional publications, draw, edit, and
modify images.
• Virtual reality – create realistic three-dimensional virtual or simulated
environments.
• Artificial intelligence – simulated human thought processes and actions.
• Project managers – pan projects, schedule, people, and control resources.

Hardware. Hardware consists of input devices, the system unit, secondary storage,
output devices, and communication devices.

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Input Devices. Input devices translate data and programs that humans can
understand into a form the computer can process. The more common are the keyboard
and the mouse.

The System Unit. The system unit consists of electronic circuitry with two parts:
• Central processing unit (CPU) – controls and manipulates data to produce
information.
• Memory (primary storage) – temporarily holds data, program instructions, and
processed data.

Secondary Storage. Secondary storage stores data and programs. Three most common
storage media are:
• Flash drive
• Hard disk – non-removable; internal disk drive.
• Optical disk – removable; CD and DVD are common.

Output Devices. Output devices processed information from the CPU. Two important
output devices are:
• Monitor – TV screen-like devices to display results.
• Printer – device that prints out images on paper.

Communication Devices. These send and receive data and programs from one
computer to another. A device that connects a microcomputer to a telephone is a
modem.

Data. Data is the raw material for data processing. Data consists of numbers, letters
and symbols and relates to facts, events and transactions. Data describes something
and is typically stored electronically in a file. A file is a collection of characters organized
as a single unit. Common types of files are:
• Document – letters, research papers, and memoranda.
• Worksheet – budget analyses, sales projections.
• Database – structured and organized data.

ACCOUNTING INFORMATION SYSTEM

Every business organization must have an accounting information system which will
generate reliable financial information needed by the decision-makers in a timely
manner. The design and operation of a system must consider the anticipated users of
the information and the types of decisions they are expected to make. The design of the
system to meet the entity’s information requirement depends on the firm’s size, nature
of operations, volume of transaction data, organizational structure, form of business
and extent of government regulation. These will influence the way in which information
is accumulated and reported in the financial statements.

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An accounting information system is the combination of personnel, records and

procedures that a business uses to meet its need for financial information. Most firms
have an accounting manual that specifies the policies and procedures to be followed in
accumulating information within the accounting information system. This manual
details what events are to be recorded in the accounts, and when and how the
information is to be classified and accumulated.

An effective accounting information system should achieve the following objectives:

• To process the information efficiently at the least cost (cost-benefit principle).
• To protect entity’s assets, to ensure that data are reliable, and to minimize wastes
and the possibility of theft or fraud (control principle).
• To be in harmony with the entity’s organizational and human factors
(compatibility principle).
• To be able to accommodate growth in the volume of transactions and for
organizational changes (flexibility principle).

The diagram illustrates how economic activities flow into the accounting process, which
produces accounting information. This information is then used by decision makers in
making economic decisions and taking specific actions; thus, resulting in economic
activities. The cycle goes on.

TYPES OF ACCOUNTING INFORMATION SYSTEMS

In general terms, companies use three types of accounting information systems to

record the results of transactions: manual systems, computer-based transaction
systems and database systems. All of these systems are designed to capture information
regarding accounting events to prepare financial statements.

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In a nutshell, manual systems utilize paper-based journals (general and special) and
ledgers (general and subsidiary). Computer-based transaction systems replace paper
records with computer records. Database systems embed accounting data within the
business event data on which they are based.

Computer-Based Transaction Systems

Manual systems rely on human processing so they are labor intensive and may be
inefficient in today’s complex business environment. Because manual systems rely on
human processing, they may be prone to error. To overcome these deficiencies, many
companies have computerized their accounting processes.

A computer-based transaction system maintains accounting data separately from other

operating data. That is, the accounting records are kept separately from the records
required for the expenditure, revenue and conversion processes. Suffice it to say, at
this point, that there is a greater degree of compartmentalization of work to preserve the
integrity of the accounting information system but not as ideal as the database system.

This system treats information in the same manner as a manual system. The user is
simply filling in a computer screen that looks and oftentimes acts like a source
document. Some of the advantages of this system are as follows:
• Transactions can be quickly posted to the appropriate accounts, bypassing the
journalizing process.
• Detailed listings of transactions can be printed for review at any time.
• Internal controls and edit checks can be used to prevent and detect errors.
• A wide variety of reports can be prepared.

Accounting packages consists of several modules. A module is a program which deals

with one particular part of a business accounting system. A simple accounting package
might consist of only one module, in which case it is called a stand-alone module. But
more often it will consist of several modules, in which case, it will then be called a suite.
Examples include QuickBooks and PeachTree.

Database Systems

Relational database systems such as enterprise resource planning (ERP) depart from
the “accounting equation” method of organizing data. These ERP systems such as SAP,
Oracle and PeopleSoft capture data, both financial and non-financial, and store that
information in a data warehouse. Database systems reduce inefficiencies and
redundancies that often exist in transaction-based systems.

For example, in transaction-based systems, customer information (like name, address,

phone, credit limit) is often maintained separately from customers account information.
Thus, a salesperson who does not know a customer’s balance might inadvertently
encourage a customer to purchase items that exceed that credit limit. Also, separate
departments have special information needs such that when a database system is not

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used then the same customer information may be recorded several times. Advantages
of database systems include:
• The system recognizes business rather than just accounting events.
• The system supports reduction in operating inefficiencies.
• The system eliminates redundant data.

STAGES OF DATA PROCESSING

Processing of raw data into useful accounting information then finally into summarized
reports follows the usual input-processing-output progression. Each transaction
entered into the accounting system should be supported by source documents like
customer invoices, vendor invoices, deposit slips, checks, time cards and memos. These
documents serve as evidence that a particular transaction occurred. They also provide
the necessary details and supports. The computer, with the use of the accounting
software, then processes the inputs. As will be discussed later, the manual system of
journalizing, posting, preparing the trial balance and updating the accounts are done
almost instantaneously. When required, the financial statements and other accounting
reports can be viewed on the screen or printed as output documents.

In many situations, manual systems are inferior to computerized systems in terms of

productivity, speed, accessibility, quality of output, incidence of errors and bulk.

ELEMENTS OF FINANCIAL STATEMENTS

Financial Position

In simple terms, assets are valuable resources owned by the entity. Per Framework,
asset is a resource controlled by the enterprise as a result of past events and from which
future economic benefits are expected to flow to the enterprise. The future economic
benefits embodied in an asset may flow to the enterprise in a number of ways. The parts
of the definition of an asset can be explained further:
• “Controlled by the enterprise” – Control is the ability to obtain the economic
benefits and to restrict the access of others (e.g. an entity being the sole user of
its plant and equipment, or by selling idle assets).
• “Past events” – The event must be part before an asset can arise. For example,
equipment will only become an asset when there is the right to demand delivery
or access to the asset’s potential. Dependent on the terms of the contract, this
may be on acceptance of the order or on delivery.
• “Future economic benefits” – These are evidenced by the prospective receipt of
cash. This could be cash itself, an account receivable or any item which may be
sold. Although, for example, a factory may not be sold (on a going concern basis)
for it houses the manufacturing facility for the goods. When these goods are sold,
the economic benefit resulting from the use of the factory is realized as cash.

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For example, an asset may be:

• Used singly or in combination with other assets in the production of goods or
services to be sold by the enterprise;
• Exchanged for other assets;
• Used to settle a liability; or
• Distributed to the owners of the enterprise.

Assets include cash, cash equivalents, notes receivable, accounts receivable,

inventories, prepaid expenses, property, plant and equipment, investments, intangible
assets and other assets.

Liabilities are obligations of the entity to outside parties who have furnished resources.
Per Framework, liability is a present obligation of the enterprise arising from past
events, the settlement of which is expected to result in an outflow from the enterprise
of resources embodying economic benefits. The parts of the definition of a liability can
be explained further:
• “Obligations” – These may be legal or not. For example, the year end tax liability
related to the year’s (i.e. past) events but in law this liability does not arise until
it is assessed some time later.
• “Transfer economic benefits” – This could be a transfer of cash, or other
property, the provision of a service or the refraining from activities which would
otherwise be profitable.
• “Past transactions or events” – refer to discussion in assets.
• “Complementary nature of assets and liabilities” – As should be evident from
the above, assets and liabilities are seen as mirror images of each other.

Settlement of a present obligation may occur in a number of ways, for example by:
• Payment of cash;
• Transfer of other assets;
• Provision of services;
• Replacement of that obligation with another obligation; or
• Conversion of the obligation to equity

Liabilities include notes payable, accounts payable, accrued liabilities, unearned

revenues, mortgage payable, bonds payable and other debts of the enterprise.

Equity is the residual interest in the assets of the enterprise after deducting all its
liabilities. Equity may pertain to any of the following depending on the form of business
organization:
• In a sole proprietorship, there is only one owner’s equity account because there
is only one owner.
• In partnership, an owner’s equity account exists for each partner.
• In a corporation, owner’s equity or stockholders’ equity consists of share capital,
retained earnings and reserves representing appropriations of retained earnings
among others.

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Performance

Income is increases in economic benefits during the accounting period in the form of
inflows or enhancements of assets or decreases of liabilities that result in increases in
equity, other than those relating to contributions from equity participants.

The definition of income encompasses both revenues and gains. Revenue arises in the
course of the ordinary activities of an enterprise and is referred to by a variety of different
names including sales, fees, interest, dividends, royalties, and rent.

Gains represent other items that meet the definition of income and may, or may not,
arise in the course of the ordinary activities of an enterprise. Gains represent increases
in economic benefits and as such are no different in nature from revenue. Hence, they
are not regarded as constituting a separate element.

Expenses are decreases in economic benefits during the accounting period in the form
of outflows or depletions of assets or incurrence of liabilities that result in decreases in
equity, other than those relating to distributions to equity participants.

The definition of expenses encompasses losses as well as those expenses that arise in
the course of the ordinary activities of the enterprise. There are various classes of
expenses but they are generally classified as cost of services rendered or goods sold,
distribution or selling expenses, administrative expenses or other operating expenses.

Losses represent other items that meet the definition of expense and may or may not,
arise in the course of the ordinary activities of an enterprise. Losses represent decreases
in economic benefits and as such are no different in nature from other expenses. Hence,
they are not regarded as a separate element in this framework.

THE ACCOUNT

The basic summary device of accounting is the account. A separate account is

maintained for each element that appears in the balance sheet (assets, liabilities and
equity) and in the income statement (income and expenses). Thus, an account may be
defined as a detailed record of the increases, decreases and balance of each element
that appears in an entity’s financial statements. The simplest form of the account is
known as the “T” account because of its similarity to the letter “T”. The account has
three parts as shown below:

ACCOUNT TITLE
Left side or Right side
Debit side or Credit
side

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THE ACCOUNTING EQUATION

Financial statements tell us how a business is performing. They are the final products
of the accounting process. But how do we arrive at the items and amounts that make
up the financial statements? The most basic tool of accounting is the accounting
equation. This equation presents the resources controlled by the enterprise, the
present obligations of the enterprise and the residual interest in the assets. It states
that assets must always equal liabilities and owner’s equity. The basic accounting
model is:

Assets = Liabilities + Owner’s Equity

Note that the assets are on the left side of the equation opposite the liabilities and
owner’s equity. This explains why increases and decreases in assets are recorded in the
opposite manner (“mirror image”) as liabilities and owner’s equity are recorded. The
equation also explains why liabilities and owner’s equity follow the same rules of debit
and credit.

The logic of debiting and crediting is related to the accounting equation. Transactions
may require additions to both sides (left and right sides), subtractions from both sides
(left and right sides), or an addition and subtraction on the same side (left or right side),
but in all cases the equality must be maintained.

DEBITS AND CREDITS – THE DOUBLE-ENTRY SYSTEM

Accounting is based on a double-entry system which means that the dual effects of a
business transaction is recorded. A debit side entry must have a corresponding credit
side entry. For every transaction, there must be one or more accounts debited and one
or more accounts credited. Each transaction affects at least two accounts. The total
debits for a transaction must always equal the total credits.

An account is debited when an amount is entered on the left side of the account and
credited when an amount is entered on the right side. The abbreviations for debit and
credit are Dr. (from the Latin debere) and Cr. (from the Latin credere), respectively.

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The account type determines how increases or decreases in it are recorded. Increases
in assets are recorded as debits (on the left side of the account) while decreases in assets
are recorded as credits (on the right side). Conversely, increases in liabilities and
owner’s equity are recorded by credits and decreases are entered as debits.

The rules of debit and credit for income and expense accounts are based on the
relationship of these accounts to owner’s equity. Income increases owner’s equity and
expense decreases owner’s equity. Hence, increases in income are recorded as credits
and decreases as debits. Increases in expenses are recorded as debits and decreases
as credits. These are the rules of debit and credit. The following summarizes the
rules:

Balance Sheet Accounts

Assets Liabilities and Owner’s

Debit Credit Equity
(+) (-) Debit Credit
Increases Decreases (-) (+)
Decreases Increases
Normal
Balance Normal
Balance

Income Statement Accounts

Debit for Credit for
decreases in owner’s equity increases in owner’s equity

Expenses Income
Debit Credit Debit Credit
(+) (-) (-) (+)
Increases Decreases Decreases Increases

Normal Normal
Balance Balance

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NORMAL BALANCE OF AN ACCOUNT

The normal balance of any account refers to the side of the account – debit or credit –
where increases are recorded. Asset, owner’s withdrawal and expense accounts
normally have debit balances; liability, owner’s equity and income accounts normally
have credit balances. This result occurs because increases in an account are usually
greater than or equal to decreases.

Increases Recorded Normal Balance

by
Account Category Debit Credit Debit Credit
Assets ✓ ✓
Liabilities ✓ ✓
Owner’s Equity:
Owner’s Capital ✓ ✓
Withdrawals ✓ ✓
Income ✓ ✓
Expenses ✓ ✓

ACCOUNTING EVENTS AND TRANSACTIONS

An accounting event is an economic occurrence that causes changes in an enterprise’s

assets, liabilities, and /or equity. Events may be internal actions, such as the use of
equipment for the production of goods or services. It can also be an external event, such
as the purchase of raw materials from a supplier.

A transaction is a particular kind of event that involves the transfer of something of

value between two entities. Examples of transactions include acquiring assets from
owner(s), borrowing funds from creditors, and purchasing or selling goods and services.

TYPES AND EFFECTS OF TRANSACTIONS

It will be beneficial in the long-term to be able to understand a classification approach

that emphasizes the effects of accounting events rather than the recording procedures
involved. This approach is quite pioneering. Although business entities engage in
numerous transactions, all transactions can be classified into one of four types, namely:
1. Source of Assets (SA). An asset account increases and a corresponding claims
(liabilities or owner’s equity) account increases. Examples: (1) Purchase of
supplies on account; (2) Sold goods on cash on delivery basis.
2. Exchange of Assets (EA). One asset account increases and another asset
account decreases. Example: Acquired equipment for cash.
3. Use of Assets (UA). An asset account decreases and a corresponding claims
(liabilities or equity) account decreases. Example: (1) Settled accounts payable;
(2) Paid salaries of employees.

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4. Exchange of Claims (EC). One claims (liabilities or owner’s equity) account

increases and another claims (liabilities or owner’s equity) account decreases.
Example: Received utilities bill but did not pay.

Every accountable event has a dual but self-balancing effect on the accounting equation.
Recognizing these events will not in any manner affect the equality of the basic
accounting model. The four types of transactions above may be further expanded into
nine types of effects as follows:
1. Increase in Assets = Increase in Liabilities (SA)
2. Increase in Assets = Increase in Owner’s Equity (SA)
3. Increase in one Asset = Decrease in another Asset (EA)
4. Decrease in Assets = Decrease in Liabilities (UA)
5. Decrease In Assets = Decrease in Owner’s Equity (UA)
6. Increase in Liabilities = Decrease in Owner’s Equity (EC)
7. Increase in Owner’s Equity = Decrease in Liabilities (EC)
8. Increase in one Liability = Decrease in another Liability (EC)
9. Increase in one Owner’s Equity = Decrease in another Owner’s Equity (EC)

TYPICAL ACCOUNT TITLES USED

STATEMENT OF FINANCIAL POSITION

Assets

Assets are should be classified only into two: current assets and non-current assets.
Per revised Philippine Accounting Standards (PAS) No. 1, an entity shall classify assets
as current when:
a. it expects to realize the asset, or intends to sell or consume it, in its normal
operating cycle;
b. it holds the asset primarily for the purpose of trading;
c. it expects to realize the asset within twelve months after the reporting period; or
d. the asset is cash or a cash equivalent (as defined in PAS No. 7) unless the asset
is restricted from being exchanged or used to settle a liability for at least twelve
months after the reporting period.

All other assets should be classified as non-current assets. Operating cycle is the time
between the acquisition of assets for processing and their realization in cash or cash
equivalents. When the entity’s normal operating cycle is not clearly identifiable, it is
assumed to be twelve months.

Current Assets

Cash. Cash is any medium of exchange that a bank will accept for deposit at face value.
It includes coins, currency, checks, money orders, bank deposits and drafts.

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Cash Equivalents. Per PAS No. 7, these are short-term, highly liquid investments that
are readily convertible to known amounts of cash and which are subject to an
insignificant risk of changes in value.

Notes Receivable. A note receivable is a written pledge that the customer will pay the
business a fixed amount of money on a certain date.

Accounts Receivable. These are claims against customers arising from sales of
services or goods on credit. This type of receivable offers less security than a promissory
note.

Inventories. Per PAS No. 2, these are assets which are (a) held for sale in the ordinary
course of business; (b) in the process of production for such sale; or (c) in the form of
materials or supplies to be consumed in the production process or in the rendering of
services.

Prepaid Expenses. These are expenses paid for by the business in advance. It is an
asset because the business avoids having to pay cash in the future for a specific
expense. These include insurance and rent. These prepaid items represent future
economic benefits – assets – until the time these start to contribute to the earning
process; these, then become expenses.

Non-current Assets

Property, Plant and Equipment. Per PAS No. 16, these are tangible assets that are
held by an enterprise for use in the production or supply of goods or services, or for
rental to others, or for administrative purposes and which are expected to be used
during more than one period. Included are such items as land, building, machinery
and equipment, furniture and fixtures, motor vehicles and equipment.

Accumulated Depreciation. It is a contra account that contains the sum of the periodic
depreciation charges. The balance in this account is deducted from the cost of the
related asset – equipment or buildings – to obtain book value.

Intangible Assets. Per PAS No. 38, these are identifiable, nonmonetary assets without
physical substance held for use in the production or supply of goods or services, for
rental to others, or for administrative purposes. These include goodwill, patents
copyrights, licenses, franchises, trademarks, brand names, secret processes,
subscription lists and non-competition agreements.

Liabilities

Per revised Philippine Accounting Standards (PAS) No. 1, an entity shall classify a
liability as current when:
a. it expects to settle the liability in its normal operating cycle;
b. it holds the liability primarily for the purpose of trading;

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c. the liability is due to be settled within twelve months after the reporting period;
or
d. the entity does not have an unconditional right to defer settlement of the liability
for at least twelve months after the reporting period.

All other liabilities should be classified as non-current liabilities.

Current Liabilities

Accounts Payable. This account represents the reverse relationship of the accounts
receivable. By accepting the goods or services, the buyer agrees to pay for them in the
near future.

Notes Payable. A note payable is like a note receivable but in a reverse sense. In the
case of a note payable, the business entity is the maker of the note; that is, the business
entity is the part who promises to pay the other party a specified amount of money on
a specified future date.

Accrued Liabilities. Amounts owed to others for unpaid expenses. This account
includes salaries payable, utilities payable, interest payable and taxes payable.

Unearned Revenues. When the business entity receives payment before providing its
customers with goods or services, the amounts received are recorded in the unearned
revenue account (liability method). When the goods or services are provided to the
customer, the unearned revenue is reduced and income is recognized.

Current Portion of Long-Term Debt. These are portions of mortgage notes, bonds and
other long-term indebtedness which are to be paid within one year from the balance
sheet date.

Non-current Liabilities

Mortgage Payable. This account records long-term debt of the business entity for which
the business entity has pledged certain assets as security to the creditor. In the event
that the debt payments are not made, the creditor can foreclose or cause the mortgaged
asset to be sold to enable the entity to settle the claim.

Bonds Payable. Business organizations often obtain substantial sums of money from
lenders to finance the acquisition of equipment and other needed assets. They obtain
these funds by issuing bonds. The bond is a contract between the issuer and the lender
specifying the terms of repayment and the interest to be charged.

Owner’s Equity

Capital (from the Latin capitalis, meaning “property”). This account is used to record
the original and additional investments of the owner of the business entity. It is

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increased by the amount of profit earned during the year or is decreased by a loss. Cash
or other assets that the owner may withdraw from the business ultimately reduce it.
This account title bears the name of the owner.

Withdrawals. When the owner of a business entity withdraws cash or other assets,
such are recorded in the drawing or withdrawal account rather than directly reducing
the owner’s equity account.

Income Summary. It is a temporary account used at the end of the accounting period
to close income and expenses. This account shows the profit or loss for the period before
closing to the capital account.

INCOME STATEMENT

Income

Service Income. Revenues earned by performing services for a customer or client; for
example, accounting services by a CPA firm, laundry services by a laundry shop.

Sales. Revenues earned as a result of sale of merchandise; for example, sale of building
materials by a construction supplies firm.

Expenses

Cost of Sales. The cost incurred to purchase or to produce the products sold to
customers during the period; also called cost of goods sold.

Salaries or Wages Expense. Includes all payments as a result of an employer-employee

relationship such as salaries or wages, 13th month pay, cost of living allowances and
other related benefits.

Telecommunications, Electricity, Fuel and Water Expenses. Expenses related to

use of telecommunications facilities, consumption of electricity, fuel and water.

Rent Expense. Expense for space, equipment or other asset rentals.

Supplies Expense. Expense of using supplies (e.g. office supplies) in the conduct of
daily business.

Insurance Expense. Portion of premiums paid on insurance coverage (e.g. on motor

vehicle, health, life, fire, typhoon or flood) which has expired.

Depreciation Expense. The portion of the cost of a tangible asset (e.g. buildings and
equipment) allocated or charged as expense during an accounting period.

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Uncollectible Accounts Expense. The amount of receivables estimated to be doubtful

of collection and charged as expense during an accounting period.

Interest Expense. An expense related to use of borrowed funds.

References:
Ballada, W. & Ballada, S. (2011). Basic Accounting (16th Ed.). Manila: DomDane
Publishers

Prepared by:

IDr. Diane Arnette A. Bacong

April 2023

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