Head of Accounts

Following are the head of accounts according to American approach:
1. Assets
2. Liabilities
3. Capital or owner’s equity
4. Revenues
5. Expenses
1. Assets
Assets are of two types.
 Fixed assets
 Current assets
Fixed assets:
Such assets which give benefit to the business for more than one year and these are bought not for sale are called fixed assets.
Examples:
 Land
 Building
 Plant and machinery
Plant is combination of different machines.
 Furniture and fixture
Furniture can be moved but fixture can not be moved.
 Motor vehicle
 Office equipment
 Horses and carts.
 Tools
 Computer
Current assets
Such assets:
• That are in the form of cash
• That will give cash, converted into cash with in one year: and
• That will be consumed within one year,
are called current assets
Examples
 Cash in hand
 Cash at bank
 Debtor / Accounts receivable

 Bills receivable

 Stationery

 Prepaid expenses

 Incomes receivable

 Notes receivable

2. Liabilities

Liabilities are of 2 types:

 Short term liabilities

 Long term liabilities

Short term liabilities / current liabilities

Liabilities which are to be paid within one year are called short term liabilities.

Examples

 Accounts payable (Creditors)

 Bills payable

 Notes payable

 Short term bank loan 

 Expenses payable

 Bank overdraft

Long term liabilities 

Liabilities which are to be paid after one year are called long term liabilities.

Examples:

 Long term bank loan

 Debentures, bonds etc.

3. Capital or owner’s equity

The amount of cash, goods or any other asset which is invested by owner is called capital or owner’s equity.

4. Expenses

These are of two types:

 Direct expenses

 Indirect expenses

Direct expenses

Expenses incurred to produce goods or incurred during the process of taking goods from the point of purchases to the point of sale are called direct expenses.

Examples

 Wages

 Carriage, carriage in, carriage inward

 Railway carriage, railway carriage in ward

 Freight, freight in, freight inward

 Cartage, cartage in, cartage inward

 Octroi duty

 Custom duty

 Coal, gas and water expenses

 Motive power expenses

 Royalty expenses

Indirect expenses

Expenses incurred to sell the goods or the expenses incurred on administration of business are called indirect expenses.

Examples

 Rent

 Salaries

 Insurance

 Carriage out carriage outward

 Freight out / freight outward

 Cartage out / cartage outward

 Rates and taxes (which is collected by the local government)

 Advertisement expenses

 Entertainment expenses

 Stationery expenses

 Free samples

 Charity 

 Repair and maintenance expenses

 Bad debts

 Discount allowed.

 Commission paid expenses.

 Interest paid expenses.

 General expenses

 Utility bills expenses

5. Revenues

These are of 2 types:

 Operational revenues

 Non operational revenues

Operational revenues

Revenues earned from the daily operation of business are called operational revenues.

For example 

 Sales revenue

Non operational revenues

Revenues earned other than operational activities are called non operational revenues. These are called other revenues.

Examples

 Discount received

 Rent received

 Commission received

 Interest received