Accounting Basics: Accounts Overview

An account is a record summarizing all transactions related to a particular asset, liability, equity, revenue, or expense.

Asset Accounts: Resources owned by a business (e.g., cash, inventory, property).
Liability Accounts: Obligations owed to other parties (e.g., loans, accounts payable).
Equity Accounts: Owner's interest in the business (e.g., common stock, retained earnings).
Revenue Accounts: Income generated from normal business activities (e.g., sales revenue).
Expense Accounts: Costs incurred to generate revenue (e.g., rent, utilities).

Assets = Liabilities + Equity
- Illustrates the relationship between a company’s resources and claims against those resources.

Double-entry bookkeeping: Every transaction affects at least two accounts, maintaining the balance in the accounting equation.
- Debit: Increases in assets and expenses, decreases in liabilities and equity.
- Credit: Decreases in assets and expenses, increases in liabilities and equity.

Personal Accounts: Relate to individuals or organizations (e.g., customer accounts).
Real Accounts: Tangible and intangible assets (e.g., land, patents).
Nominal Accounts: Temporary accounts that track financial performance over a period (e.g., revenue and expense accounts).

Provides detailed insight into the financial position of a business.
Aids in tracking financial performance and budgeting.
Essential for preparing financial statements (e.g., balance sheet, income statement).

Account Balance: The difference between total debits and credits in an account.
Chart of Accounts: A listing of all accounts used by an organization, categorized by type.
Account Receivable: Money owed to a business by customers for goods/services sold.
Account Payable: Money owed by a business to suppliers for goods/services purchased.

A record that summarizes all financial transactions related to a specific asset, liability, equity, revenue, or expense.

Asset Accounts: Represent resources owned by a business, including cash, inventory, and property.
Liability Accounts: Represent obligations owed to others, such as loans and accounts payable (money owed to suppliers).
Equity Accounts: Represent the owner's investment in the business, including common stock and accumulated profits (retained earnings).
Revenue Accounts: Reflect income generated from regular business operations, such as sales revenue.
Expense Accounts: Record the costs incurred to generate revenue, including rent, utilities, and salaries.

Assets = Liabilities + Equity
- This equation demonstrates the fundamental relationship between a company's resources (assets) and the claims against those resources (liabilities and equity).

Every financial transaction affects at least two accounts, ensuring the accounting equation remains balanced.
- Debit: Increases asset and expense accounts; decreases liability and equity accounts.
- Credit: Decreases asset and expense accounts; increases liability and equity accounts.

Personal Accounts: Track interactions with individuals or organizations, like customer accounts (money owed by them to a business) and supplier accounts (money owed by the business to a supplier).
Real Accounts: Relate to tangible and intangible assets, including land, buildings, machinery, and patents.
Nominal Accounts: Temporary accounts used to track financial performance over a specific accounting period, like revenue and expense accounts. These accounts are closed at the end of the period.

Financial Position: Provide a detailed understanding of a business's financial health at a specific point in time.
Performance Tracking: Help track the company's financial performance and profitability over time.
Budgeting: Essential for developing and monitoring financial plans.
Financial Statements: Foundation for preparing essential financial reports such as the balance sheet, income statement, and statement of cash flows.

Regular Review: Important to regularly review account information to ensure accuracy and reconciliation with other financial records.
Accounting Software: Utilizing accounting software helps streamline account management, automate processes, and generate accurate reports.

Account Balance: The difference between total debits and credits in an individual account.
- A positive balance means there are more debits than credits.
- A negative balance means there are more credits than debits.
Chart of Accounts: A comprehensive listing of all accounts used by a business, organized by type.
Account Receivable: Money owed to a business by customers for goods or services sold.
Account Payable: Money owed by a business to suppliers for goods or services purchased.