Accounting Classification Flashcards

Account Classifications Overview

• Current Liability: Represents obligations due within one year such as Accounts Payable, Income Taxes Payable, Dividends Payable, and Salaries and Wages Payable.
• Current Asset: Assets expected to be converted to cash or consumed within one year, including Cash, Accounts Receivable, Inventory, Supplies, and Prepaid Expenses.
• Long-Term Liability: Obligations due beyond one year, exemplified by Bonds Payable and Mortgage Payable.
• Plant Assets: Long-term tangible assets utilized in operations, categorized as Buildings, Equipment, Land, and considered with Accumulated Depreciation.
• Operating Expense: Costs incurred during regular business operations, such as Advertising Expense, Depreciation Expense, and Utilities Expense.
• Stockholder's Equity: Represents ownership equity in the company, including Common Stock, Preferred Stock, Retained Earnings, and Paid-in Capital.
• Intangible Asset: Non-physical assets with a long-term benefit, such as Copyrights, Goodwill, and Patents.
• Other Income and Expense: Includes unique transactions not classified under main categories, such as Gain on Disposal of Plant Assets and Interest Expense.
• Revenue: Income generated from primary business activities, categorized as Sales Revenue, Service Revenue, with contra-revenue accounts like Sales Discounts and Sales Returns.

Additional Classes for Contra Accounts

• Current Asset—Contra: Accounts that reduce the value of reported current assets, exemplified by Allowance for Doubtful Accounts.
• Long-Term Liability—Contra: Related to long-term debts, represented by Discount on Bonds Payable and Premium on Bonds Payable.
• Revenue—Contra: Reductions to total revenue indicating discounts or returns, including Sales Discounts and Sales Returns and Allowances.

Special Account Classifications

• Temporary Accounts: Accounts that reset each accounting period, including Dividends and Income Summary, which eventually close to Retained Earnings or Owner's Capital.
• Owner's Equity: Includes Owner's Capital and Owner's Drawings, depicting the owner's stake and transactions for personal withdrawals.

Key Financial Classification Takeaways

• Each classification serves an essential role in presenting the financial status and performance of a business.
• Understanding these classifications is crucial for financial reporting, analysis, and decision-making.