Financial Accounting (5 types of accounts).docx

Financial Accounting (5 types of accounts).docx - Financial...

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Financial Accounting 5 types of Accounts: a. Assets- are resources owned or controlled by a company, and those resources have expected future benefits. b. Liabilities- are claims (by creditors) against asset, which means they are obligations to transfer assets or provide products or services to others. * Creditors are individuals and organizations that have rights to receive payments from a company. Common liability accounts are described here. c. Equity Accounts- The owner’s claim on a company’s assets is called equity, stockholders’ equity, or shareholders’ equity. Equity is the owner’s residual interest in the assets of a business after deducting liabilities. Equity is impacted by four types of accounts as follows: Equity= Common Stock-Dividends + Revenues- Expenses d. Revenues- The inflow of net assets from providing products and services to customers increases equity through increases in revenue accounts. Examples of revenue accounts are Sales, Commissions Earned, Professional Fees Earned, Rent Revenue, and Interest Revenue. Revenues always increase equity. e. Expense Accounts- The outflow of net assets in helping generate revenues decreases equity through increases in expense accounts. Examples of expense accounts are Advertising Expense, Store Supplies Expense, Office Salaries Expense, Office Supplies Expense, Rent Expense, Utilities Expense, and Insurance Expense. Expenses always decrease equity. Examples of Assets 1. Cash- a Cash account reflects a company’s cash balance. All increases and decreases in cash are recorded in the Cash account. It includes money and any funds that a bank accepts for deposit (coins, checks, money orders, and checking
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