Account Types

Transactions deserve to be summary into similar group or accounts. A agency compiles a perform of account to make the chart of accounts. Need an ext information about what one account is? watch this quick video.

You are watching: Identify each account as asset, liability, or equity.

The video explained that accounts are like record folders. What space some things a firm might have? A company might have cash or a checking account, invoices for money us will get from customers later, receipt we have to pay, and we could own property prefer land, structure or equipment. We have 5 simple categories for accounts:

Asset: miscellaneous a company has or ownsLiability: Something us owe come a non-ownerEquity: Something we owe to the owner or the worth of the invest to the ownerRevenue: worth of the products we have sold or the services we have actually performedExpenses: prices of law business

Let’s look at at each one individually. We will certainly look at the broad picture of each classification as friend will find out the details later on in the course.

Assets: Assets room something you very own or have and they are sources you expect to gain a benefit from in the future. Relying on the nature of the business there are plenty of things that deserve to be classified as assets.

Some instances of assets are:

Cash (refers come the organization cash available but can also be a check or save account)Office offers or other prepaid expenses (any prices the organization pays in advance)Accounts receivable (amount us will receive from customers at a later on date)Inventory (items us intend to sell later)Equipment (value of devices purchased)Building (value of building purchased)Land (value of soil purchased)

Liabilities: Liabilities are something that company owes to a non-owner (debt and also business obligations). Legal responsibility can quickly be identified as the account will many often end in the word “payable” due to the fact that it is other we should pay who in the future.

Some examples of legal responsibility are:

Accounts Payable (bills the agency must pay)Sales taxes Payable (sales taxes obligations)Wages Payable (obligations to employees for work performed),Payroll counting Payable (obligations paid on a monthly or quarterly to state, local or commonwealth agencies)Unearned Revenue (down payments received on work to be completed in the future)Mortgage Payable (for example mortgage on organization property)Notes Payable (business financial obligations from signing a promissory note).

Equity: equity accounts represent the worth of the owner’s investment in the company. The same accounts room different based upon the type of company.

For sole-proprietorship and partnership, a Capital account is offered to record the invest of the owners and also income earned by the company. A Withdrawal (or drawing) account is used when the owner take away money the end for an individual use.For corporations, a Common Stock account is offered to record the invest of the owners. A Retained Earnings account is supplied to document the earnings of a corporation and to document when revenue are given ago to the owners in the type of dividends.

Revenues represent the value of the items or solutions provided. Many thanks to the revenue acknowledgment principle, we record revenue as soon as we actually execute the job-related by performing a company or transporting a product. Examples of revenue accounts include:

Service Revenue (revenue from perfect a service, could be specific like plumbing service revenue, audit service revenue, photography company revenue, etc.)Sales Revenue (value of assets you sell)Interest Revenue (value of interest earned on investments or financial institution accounts)

Expenses are expenses to the firm and reflect the outflow the money. What problem is have we occurs or used the expense. These costs represent the all costs of act business and also are provided in order to generate the revenue. Instances of expenses accounts incorporate (notice how most cost accounts end in words “expense”):

Cost of items Sold (what we paid because that inventory we have sold)Utilities expense (cost that utilities)Wages price (cost that employee’s earnings)Rent cost (cost that renting office an are or equipment)Supplies price (cost of supplies used)Insurance expense (cost of insurance used)Advertising price (cost of advertising)Bank Fees cost (cost of financial institution fees fee by the bank)

Below is an instance of a graph of account for metro Courier, Inc. Which is a corporation. Notice how the graph is listed in the order of Assets, Liabilities, Equity, Revenue and Expense. This order makes it simple to finish the financial statements. Click subway COA for a printable copy.

Metro Courier Inc.

See more: Diversification Will Normally Reduce The Riskiness Of A Portfolio Of Stocks.

Chart the Accounts
Account NameAccount Type
CashAsset
SuppliesAsset
Accounts ReceivableAsset
Prepaid RentAsset
InventoryAsset
Office EquipmentAsset
BuildingAsset
LandAsset
Accounts PayableLiability
Interest PayableLiability
Wages PayableLiability
Sales tax PayableLiability
Unearned RevenueLiability
Income taxation PayableLiability
Social protection Tax PayableLiability
Mortgage PayableLiability
Notes PayableLiability
Common StockEquity
Retained EarningsEquity
Service RevenueRevenue
Interest RevenueRevenue
Utilities ExpenseExpense
Rent ExpenseExpense
Supplies ExpenseExpense
Wages ExpenseExpense
Taxes ExpenseExpense
Insurance ExpenseExpense
Bank Fees ExpenseExpense

 

You can produce your own grasp chart of account for use in this course and also build top top it as we go along. Girlfriend should be able to complete the account type column and also some of the account descriptions. Click Chart the Accounts to access a google spreadsheet that you deserve to download and use throughout the course.