Major Types of Accounts – Quick Review

Learning Objectives

  • State the five major accounts.
  • Give examples of each major account type.

Account Basics

  • Account: storage record of increases/decreases in a specific asset, liability, equity, income, or expense.
  • Entries organized in a "T""T"-account format.

T-Account Structure

  • Account title: item being tracked.
  • Debit side (Dr.): left; “value received.”
  • Credit side (Cr.): right; “value parted with.”

Debit vs. Credit Rules

  • Debit balance ⇒ total debits > total credits.
  • Credit balance ⇒ total credits > total debits.
  • Latin roots: debere (Dr.), credere (Cr.).

Five Major Accounts

  • Assets\text{Assets} – economic resources controlled, from past events, providing future benefits.
  • Liabilities\text{Liabilities} – present obligations from past events, requiring resource outflow.
  • Equity\text{Equity} – residual interest: Assets−Liabilities\text{Assets} - \text{Liabilities}.
  • Income\text{Income} – increases in economic benefits (↑ assets or ↓ liabilities) that raise equity, excluding owner investments.
  • Expenses\text{Expenses} – decreases in economic benefits (↓ assets or ↑ liabilities) that reduce equity, excluding owner withdrawals.

Income Breakdown

  • Revenue: arises from ordinary activities (e.g., sales, service fees).
  • Gains: other income items; may occur inside or outside ordinary operations.

Key Formula

  • Expanded accounting equation: (Assets=Liabilities+Equity)(\text{Assets} = \text{Liabilities} + \text{Equity})

Quick Recall Points

  • Debit = left; Credit = right.
  • Balances derive from netting debits & credits in each account.
  • Revenue vs. Gains distinction hinges on ordinary course of business.