Accounting Basics: Accounts and Principles

Account: A record summarizing all transactions related to a particular asset, liability, equity, revenue, or expense.

Asset Accounts
- Current Assets: Cash, accounts receivable, inventory.
- Fixed Assets: Property, plant, equipment.
Liability Accounts
- Current Liabilities: Accounts payable, short-term debt.
- Long-term Liabilities: Mortgages, bonds payable.
Equity Accounts
- Common Stock: Owner's equity in a corporation.
- Retained Earnings: Cumulative profits not distributed as dividends.
Revenue Accounts
- Sales Revenue: Income from sales of goods/services.
- Service Revenue: Income from service-based activities.
Expense Accounts
- Operating Expenses: Costs associated with running a business (e.g., rent, utilities).
- Cost of Goods Sold (COGS): Direct costs of producing goods sold.

Double-Entry Accounting: Each transaction affects at least two accounts (debit and credit).
Chart of Accounts: A listing of all accounts used by a business, categorized by type.

Maintaining Accounts: Accurate record-keeping for financial reporting and decision-making.
Reconciliation: Regularly comparing account balances with external statements (e.g., bank statements) to ensure accuracy.

Balance Sheet: Snapshot of a company's financial position at a specific point, detailing assets, liabilities, and equity.
Income Statement: Summary of revenues and expenses over a period, showing net profit or loss.
Cash Flow Statement: Overview of cash inflows and outflows over a specific period.

An account records transactions related to assets, liabilities, equity, revenue, or expenses.
Asset Accounts include:
- Current Assets: Cash, accounts receivable, and inventory that can be liquidated within a year.
- Fixed Assets: Long-term physical assets such as property, plant, and equipment.
Liability Accounts consist of:
- Current Liabilities: Obligations due within one year, including accounts payable and short-term debt.
- Long-term Liabilities: Financial obligations lasting more than one year, like mortgages and bonds payable.
Equity Accounts feature:
- Common Stock: Represents ownership in a corporation.
- Retained Earnings: Accumulated profits retained in the business rather than distributed as dividends.
Revenue Accounts categorize:
- Sales Revenue: Earnings from selling goods or services.
- Service Revenue: Income derived from providing services.
Expense Accounts include:
- Operating Expenses: Costs for running daily operations, such as rent and utilities.
- Cost of Goods Sold (COGS): Direct production costs associated with goods sold.

Double-Entry Accounting: Each financial transaction impacts at least two accounts, balancing the accounting equation with debits and credits.
Chart of Accounts: Organized list of all accounts used by a business, arranged by their category.

Maintaining Accounts: Critical for accurate financial reporting and effective business decision-making.
Reconciliation: Process of verifying account balances against external statements (e.g., bank statements) to ensure their correctness.

Balance Sheet: Provides a view of a company's financial condition at a specific date, listing assets, liabilities, and equity.
Income Statement: Details revenues and expenses over time, calculating net profit or loss.
Cash Flow Statement: Summarizes cash inflows and outflows for a designated period, highlighting liquidity.