ACCOUNTING CATEGORIES

WEEK 2
 Accounts in Accounting

Control Accounts and Subsidiary

Ledgers
Equity Accounts

CONTENTS Business Revenues and Expenses

The Chart of Accounts

Q&A
CATEGORIES OF ACCOUNTS

Assets Liabilities Owner’s Equity

ACCOUNTS IN
ACCOUNTING
For instance, one of the most common accounts is the
company checking account.

Transactions such as paying bills decrease this account and

making deposits increases the account.

Assume an ending balance of $1,000 from last month in your

company checking account.

When you write a check for rent in the amount of $110, you
subtract that from the balance.

When you make a cash sale in the amount of $500 and deposit
the cash into the bank, you increase the balance in your
company records.
ASSETS
Checking account
 Beginning balance $1,000
 Check 101 ($110)
 Deposit $500
 Ending balance $1,390
LEDGER
The list of transactions in a particular account is called
a ledger.
The ledger is chronological and includes the current
balance.
All the accounts taken together are called the general
ledger.
Pre-computer, the general ledger was an actual book
with a page (actually, pages) for each account.
LEDGER
CONTROL ACCOUNTS AND
SUBSIDIARY LEDGERS

Assets like accounts receivable and inventory are also called control accounts, since
they show a balance, with transactions, that is backed-up by a subsidiary ledger.

The account balance in the subsidiary ledger is the same as the account balance in the
control account, but the subsidiary ledger is sorted by customer, in the case of accounts
receivable, and by item in the case of inventory.
CONTROL
ACCOUNTS
AND
SUBSIDIARY
LEDGERS
EQUITY ACCOUNTS

The equity accounts include capital contributions by the owner(s) and withdrawals.

In short, equity is the value of the owner’s investment in the business.

It is made up of all of the owner’s contributions to the business (in the form of
cash) as well as accumulated earnings that have not been distributed to the owner.

In equity accounts, capital contributions increase equity and withdrawals decrease

equity
BUSINESS REVENUES AND
EXPENSES
Expenses are the costs of doing business. In fact, the word expense comes from the word expenditure, which means,
“used up.”

So, as resources are used up to generate income, they are recognized as expenses.

Common business expenses include rent, salaries, advertising, administrative expenses and insurance.

On the other hand, revenues are the income generated by the company. Revenue may be earned by providing goods or
services as well as earnings from investments. In short, revenue is the generation of wealth for the owners, and therefore
increases owners’ equity, while expenses are the consumption of resources, and therefore decrease owners’ equity.
 Assets:
• Items of financial value that the business controls (“owns”) for
the purpose of producing income for the owners.
Liabilities:

KEY • Monies that the business owes to non-owners.

Owners Equity:
TAKEAWA • The theoretical value of the business that would be distributed
to the owners after the assets were sold and the liabilities paid.

YS Revenue:
• Payments made to the business by customers for the goods
and/or services provided by the business.
Expenses:
• Costs incurred by the business in providing the goods and/or
services purchased by the customers.
THE CHART
OF
ACCOUNTS
Assets
 Current Assets
 Long Term Assets
 Other Long-Term Assets
(Intangible)
 Checking

Savings

CURRENT Accounts Receivable

ASSETS
Inventory

Prepaid Expenses
 Equipment

Land

LONG-
TERM Buildings

ASSETS Furniture

Vehicles
 Intellectual property
OTHER
LONG-
TERM Goodwill
ASSETS
(INTANGI
BLE) Long-term investments
 Current Liabilities

LIABILITI
ES
Long-term Liabilities
 Accounts Payable

Sales Tax Payable

CURRENT
LIABILITI Income Tax Payable

ES Wages Payable

Unearned Revenue
LONG TERM Long-term debt

LIABILITIES
EQUITY

Owners’ Capital

Withdrawals

Revenue

Expenses
 Sales Revenue

REVENUE
Service Revenue
EXPENSES

Salaries
Rent Insurance Taxes
and Wages
Q&A