Skip to Main Content
It looks like you're using Internet Explorer 11 or older. This website works best with modern browsers such as the latest versions of Chrome, Firefox, Safari, and Edge. If you continue with this browser, you may see unexpected results.

ACCOUNTING: ACCOUNT CLASSIFICATIONS

Before we can start classifying and recording transactions, we need to understand the Accounting Equation. 

 

Source

The Accounting Equation must always balance!

What you have (ASSETS) = Who owns it (LIABILITIES + OWNER'S EQUITY)

 

ADDITIONAL RESOURCES

Here are two great resources to familiarize yourself with the classification of accounts.

THE ACCOUNTING EQUATION

Assets is what the business has: Cash, Inventory, Equipment, Money Owed to the Business (Accounts Receivable)...

HOW DID WE GET THESE ASSETS? We got them from the next two categories. 

Liabilities is what the business owes: 

Accounts Payable - purchased assets by placing on an account from a supplier that we will pay in the future.

Owner's Equity is what the business invested to obtain or purchase assets:

Original Investment - this could be cash or equipment.

Retained Earnings - this could be profit that you are putting back into the business. 

THE ACCOUNTING CYCLE

Source

Now that we have a basic understanding of accounts, we can analyze and record transactions through the accounting cycle.