Accounting 5 Account

The five account types are:  Assets, Liabilities, Equity, Revenue (or Income) and Expenses. And to fully understand how to post transactions and read financial reports, we must understand these five account types. Let's define them briefly and then look at each one in detail:

  • Assets (Positive/Debit Account): tangible and intangible items that the company owns that have value (e.g. cash, computer systems, patents). What the company owns of value (Cash, Accounts Receivable, furniture, vehicles)
  • Liabilities (Negative/Credit Account): money that the company owes to others (e.g. mortgages, vehicle loans). What the company owes to others (loans, Accounts Payable)
  • Equity (Negative/Credit Account): that portion of the total assets that the owners or stockholders of the company fully own; have paid for outright. The company’s net worth. Equity equals Assets minus Liabilities
  • Revenue or Income (Negative/Credit Account): money the company earns from its sales of products or services, and interest and dividends earned from marketable securities. Money the company is earning
  • Expenses (Positive/Debit Account): money the company spends to produce the goods or services that it sells (e.g. office supplies, utilities, advertising). Money the company is spending