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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