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5 Major Accounts

The document outlines the 5 main types of accounts used in accounting: assets, liabilities, equity, revenue, and expenses. It provides examples for each type of account. Assets represent things owned that have monetary value like equipment, inventory, and cash. Liabilities are amounts owed like loans, accounts payable, and credit cards. Equity is the residual claim on assets by its owners, calculated as assets minus liabilities. Revenue accounts track income from sales, services, or asset appreciation. Expense accounts track money paid for business operations and asset depreciation. Proper use of these account types is important for recording financial transactions correctly.

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Kayelle Belino
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61 views4 pages

5 Major Accounts

The document outlines the 5 main types of accounts used in accounting: assets, liabilities, equity, revenue, and expenses. It provides examples for each type of account. Assets represent things owned that have monetary value like equipment, inventory, and cash. Liabilities are amounts owed like loans, accounts payable, and credit cards. Equity is the residual claim on assets by its owners, calculated as assets minus liabilities. Revenue accounts track income from sales, services, or asset appreciation. Expense accounts track money paid for business operations and asset depreciation. Proper use of these account types is important for recording financial transactions correctly.

Uploaded by

Kayelle Belino
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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5 main types of accounts used in accounting:

 Asset
 Liability
 Equity
 Revenue
 Expense

ASSETS

For assets, we have accounts receivable (which is money that is owed to the company), bank, furniture
& equipment, inventory, PayPal, and undeposited funds (which is an account used to track funds
received, but not yet deposited into your bank account, like a check that’s sitting on your desk waiting to
be deposited).

Example of Asset accounts

All these accounts represent things that a company owns that has monetary value.For example, the
accounts receivable are kind of like I.O.U.'s that were given to a business by its customers. Likewise, the
desk in the office is also worth money if sold just like money in the bank account is obviously worth
money.

All are examples of Assets

LIABILITIES

For liability accounts we have accounts payable (which is money the company owes to other companies
for things they’ve purchased but not paid for yet), bank loan, car loan, credit card, and money that’s due
to shareholders (which is money that the company has borrowed from its shareholders).

Example of Liability accounts

All these accounts represent money that the company owes.For example, accounts payable are vendor
bills that need to be paid and the credit card account represents money owed to the bank that issued it.
All are examples of Liabilities

EQUITY

Equity includes accounts like net income (which is technically called retained earnings), dividends, and
owner’s equity (or in other words, an owner’s investment into the company).

Example of Equity accounts

Equity is the money that has been invested into the company, money that the company has made, or
money the company has paid out to its owners for investing into the company.Another way to think
about equity is to think of it as what’s left over after you take your Assets and pay off all your
liabilities.Assets - Liabilities = EquityIf we take the example of the cafe that Akko purchased, this can give
us some insight into how equity is calculated.The cafe was purchased for $100,000, composed of a 20%
down payment ($20,000) and an $80,00 mortgage. The down payment represents the equity.Assets
(Cafe) $100,000 - Liability (mortgage) $80,000 = Equity (down payment) $20,000

The 20% ($20,000) down payment represents Equity

REVENUE

Revenue includes accounts like cafe sales (which are items sold in the cafe), catering sales (which are for
catering events outside of the cafe) and interest income (You know what interest income is, right? The
0.00001 percent interest the bank gives you for the privilege of having them loan out your money).

Example of Revenue accounts

Revenue is money that goes into the business as a result of goods or services sold. Money can go into
the business through a variety of methods, from an owner investing money to a loan taken out with a
bank. Not all money going into a business is revenue.
Not all money going into a business is Revenue

Revenue can also be money received from the sale of an asset that has appreciated in value. For
example, if the cafe shop was bought for $100,000 and sold for $110,000, that would be gain on the sale
of an asset (revenue) of $10,000.

EXPENSE

Expense includes accounts like advertising, bank fees, cost of goods sold, and office supplies.

Example of Expense accounts

Expenses are money that goes out of a business to pay for operations.Like revenue, not all money going
out of a business is an expense. If money goes out of the business to pay back a loan, purchase an asset,
or as dividends to owners, these are not expenses.

Not all money going out of a business is an Expense

And like with revenue, if an asset loses value, this can be expensed as well. So when the cafe purchased
for $100,000 is later sold for $90,000, it incurs a loss on the sale of an asset (expense) of $10,000.

RECAP

Here's a recap of the key words and concepts we just learned.When you are recording entries, they are
always going to fall into one of the 5 main types of accounts:

Asset

Liability

Equity
Revenue

Expense

Its not always straightforward which account to use, even for seasoned business owners. Something
that a business considers an expense, like a $1,000 computer may be considered a $1,000 asset by an
accountant or the tax man (ok fine, we’re PC here, so tax person). So don't be discouraged if you don't
quite know which account to use when recording an entry. If you don't know, ask a professional to help
you out, someone who knows the local laws and regulations for your type of business.In the next lesson
we'll go over giving credit to customers and getting credit from vendors, which is a good introduction to
accrual accounting.

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