Discuss about the five groups of accounts
Posted by Ripon Abu Hasnat on Thursday, May 29, 2014 | 0 comments
It is very important to
be able to distinguish between the five groups of accounts: Assets, Expenses,
Equity, Revenue and Liabilities. An understanding of these groups leads into
the essential learning tool, the ‘rules of double entry’.
These are discussed below
Assets
Assets
are
items of value owned/controlled by a business; examples are cash, inventories,
buildings and motor vehicles.
Liabilities
Liabilities
are
amounts owed to people or to organizations outside of the business; examples
are amounts owed to Creditors control for purchases, or to a bank for a loan,
overdraft or mortgage.
Equity
Equity
is
represented by the business’s assets less its liabilities (or the amount that
the business owes to the owner). Equity is the amount originally invested in a
business plus extra cash introduced, plus profits and less losses and drawings
of cash or inventories from the business by the owner.
Revenue
Revenue
items
are the earnings of a business; examples are income from sales of trading
stock, interest, commission, rent and discount received.
Expenses
Expenses
are
outflows from a business; examples are payment for wages or salaries, purchases
of trading stock, payments for advertising, freight, motor vehicles expenses
and discount allowed.
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