The 5 Account Types:
1. ASSETS
- all useful or valuable things that the company owns.
- ex: cash, cars, buildings, land, etc.
2. LIABILITIES
- a company's legal financial debts or obligations.
- payable in the future
- ex: accounts payable, unearned revenue
3. EQUITY
- the value of an owner's interest in a company.
- accounts in this category are: common stock, retained earnings, and dividends.
4. REVENUES
- money earned through services provided or goods sold by the company.
5. EXPENSES
- money spent by a company to generate revenues (cost of doing business.)
- ex: rent expense, utilities expense, wages expense, etc.
* net income: revenues are greater than expenses
* net loss: expenses are greater than revenues
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FINANCIAL STATEMENTS
There are four fundamental financial statements used in accounting:
1. INCOME STATEMENT
Describes a company’s revenues and expenses along with the resulting net income or
loss over a period of time due to earnings activities.
2. STATEMENT OF RETAINED EARNINGS
Reconciles the beginning and ending retained earnings for the period, using
information such as net income from the Income Statement.
3. BALANCE SHEET
Describes a company’s financial position (types and amounts of assets, liabilities, and
equity) at a point in time.
4. STATEMENT OF CASH FLOW
Identifies cash inflows (receipts) and cash outflows (payments) over a period of time.
* The first financial statement that we prepare is the income statement.
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Assets
Dividends
* these accounts have a normal DEBIT balance.
Expenses
DEBIT
increases the account balance.
CREDIT
decreases the account balance.
Liabilities
Retained Earnings &
Common Stock
* these accounts have a normal CREDIT balance.
Revenues
DEBIT
decreases the account balance.
CREDIT
increases the account balance.
T-ACCOUNT
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