What are the 5 types of accounts in accounting?

The 5 Types of Accounts in Accounting

Accounting is the language of business. It is a system of recording, classifying, and reporting financial transactions. Transactions are classified into five account types: assets, liabilities, equity, revenue, and expenses. These categories provide a comprehensive framework for tracking financial activities and ensuring accurate financial reporting.

Assets

Assets are resources owned by a business. They include tangible assets, such as cash, inventory, and equipment, as well as intangible assets, such as goodwill and patents. Assets are reported on the balance sheet as a positive balance.

Liabilities

Liabilities are debts owed by a business. They include accounts payable, notes payable, and taxes payable. Liabilities are reported on the balance sheet as a negative balance.

Equity

Equity is the ownership interest in a business. It is calculated as the difference between assets and liabilities. Equity is reported on the balance sheet as a positive balance.

Revenue

Revenue is income earned by a business. It is generated through the sale of goods or services. Revenue is reported on the income statement as a positive amount.

Expenses

Expenses are costs incurred by a business. They include salaries, rent, and utilities. Expenses are reported on the income statement as a negative amount.

The five account types are used to create financial statements. Financial statements provide a snapshot of a business’s financial health and are used by investors, creditors, and other stakeholders to make informed decisions.