Download Tutorial Account Groups,. and more Exams Accounting in PDF only on Docsity!
WHAT'S COVERED
This tutorial will cover the topic of account groups, discussing the different types of accounts and how they are used.
Our discussion breaks down as follows:
Types Of Accounts a. Chart of Accounts Permanent Accounts Temporary Accounts
TERM TO KNOW
1. Types of Accounts
An account is a record that provides information about a given asset, liability, equity, revenue, or expense. All accounts organize into what is called a chart of accounts, which details all of the accounts contained within a company's financial system.
There are two main types of accounts, which we will cover in more detail in the next sections:
- Permanent accounts, which are a company's assets, liabilities, and equity.
- Temporary accounts, which are a company's revenue and expenses.
Account A record that provides information about a given asset, liability, equity, revenue or expense
1a. Chart of Accounts
As mentioned above, a chart of accounts is a detail of all the accounts contained within a company's financial system. It is organized by account type and categories, as shown in the example below:
TERMS TO KNOW
As you can see, the chart outlines the asset accounts: cash, current assets, and fixed assets. It also details the liabilities, which are the equity, revenue, and expenses. It is numerically ordered in a manner that allows a company to easily pinpoint specific accounts within a category of accounts.
2. Permanent Accounts
Let's dive a bit deeper into the two main type of accounts, beginning withpermanent accounts. Permanent accounts are accounts whose balances carry over from one accounting period to the next accounting period. There are three categories within this permanent account classification:
Assets Liabilities Equity
Assets are physical or non-physical resources owned by an organization that have economic value--resources like cash, inventory, and equipment.
Liabilities are the debts and other financial responsibilities of an organization, like accounts payable and loans payable, if money is owed to the bank, for instance.
The last category, equity, is the remaining value, once liabilities are subtracted from assets; think of this as the owner's capital accounts, retained earnings, or owner's draw.
TERMS TO KNOW
Account A record that provides information about a given asset, liability, equity, revenue or expense.
Assets Physical or non-physical resources owned by an organization that have economic value.
Equity The remaining value once liabilities are subtracted from assets.
Expenses Costs associated with operating or maintaining a business.
Liabilities Debts and other financial responsibilities of an organization.
Permanent Accounts Accounts whose balances carry over from one accounting period to the next accounting period.
Revenue Earnings from interest or from the sale of goods or services.
Temporary Accounts Accounts whose balances are closed at the end of an accounting period and reopened at the beginning of the next period.
Source: Adapted from Sophia instructor Evan McLaughlin.
system.
