Account Classification Flashcards

Accounts Overview

• Assets: Resources owned by a company expected to provide future economic benefits.
• Liabilities: Obligations or debts a company owes to outside parties.
• Stockholders' Equity: The residual interest in the assets after liabilities are deducted, representing ownership in the company.

Common Asset Types

• Accounts Receivable: Amounts due from customers; listed as a debit on the balance sheet.
• Equipment: Tangible assets used in operations; recorded as a debit on the balance sheet.
• Cash: Liquid asset; essential for daily operations, listed as a debit.
• Supplies: Consumables used in business operations, treated as an asset until used.
• Inventory: Goods available for sale, classified as an asset and linked to cost of goods sold.
• Prepaid Expenses: Payments made in advance for services or goods to be received later; treated as a current asset.

Revenue and Expense Recognition

• Rent Revenue: Income from leasing property; credited in income statements.
• Rent Expense: Cost incurred for renting properties; a debit on the income statement.
• Fees Earned: Income generated from providing services; credited in income statements.
• Depreciation Expense: Allocation of equipment cost over its useful life; impacts income statements.

Key Liabilities

• Accounts Payable: Amounts owed to suppliers; a credit on the balance sheet indicating liabilities.
• Unearned Revenue: Payment received before service is performed; classified as a liability until earned.
• Wages Payable: Outstanding employee compensation; treated as a liability.
• Customer Refunds Payable: Liabilities arising from expected returns.

Stockholders' Equity Components

• Common Stock: Equity shares representing ownership; credited on balance sheet.
• Preferred Stock: Special equity shares offering specific rights; recorded as equity.
• Retained Earnings: Cumulative profits retained in the business, reflects company growth; credited on balance sheets.
• Dividends: Distribution of profits to shareholders; classified as a creditor's debit on the equity statement.

Additional Expenses

• Wages Expense: Total salary costs incurred; a debit on the income statement reflecting operational costs.
• Advertising Expense: Money spent on promotional activities; recorded as a debit in income statements.
• Utilities Expense: Costs for services like electricity and water; listed as a debit on income statements.
• Interest Expense: Cost of borrowed funds; recorded as a debit impacting net income.

Contra and Adjunct Accounts

• Accumulated Depreciation: Cumulative depreciation recorded on assets, represented as a credit on the balance sheet.
• Allowance for Doubtful Accounts: Estimation of receivables that may not be collected, classified as a contra asset.
• Estimated Returns Inventory: Anticipated returns that retain value; an adjunct asset on the balance sheet.

Miscellaneous Accounts

• Cash Short and Over: Reflects discrepancies in cash; affects income statements as revenue or expense.
• Treasury Stock: Company's own shares repurchased; treated as a contra equity account.
• Product Warranty Payable: Liability for estimated future warranty claims; assessed based on sales projections.