You’ve heard about debits and credits. You know they increase and decrease certain accounts. But, how much do you know about the accounts they affect? There are five types of accounts in accounting.
If you don’t know what they are, your crash course has arrived.
Read on to learn about the different types of accounts with examples, dive into sub-accounts, and more.
When you buy or sell goods and services, you must update your business accounting books by recording the transaction in the proper account. This shows you all the money coming into and going out of your business. And, you can see how much money you have in each account. Sort and track transactions using accounts to create financial statements and make business decisions.
Generally, businesses list their accounts by creating a chart of accounts (COA). A chart of accounts lets you organize your account types, number each account, and easily locate transaction information.
So, what are the accounts you need to keep track of? There are five main types of ledger accounts…
Although businesses have many accounts in their books, every account falls under one of the following five categories:
Familiarize yourself with and learn how debits and credits affect these accounts. Then, you can accurately categorize all the sub-accounts that fall under them.
So, how do debits and credits affect asset, expense, liability, equity, and revenue accounts? Do debits decrease or increase these accounts in your books? How about credits?
Assets and expenses increase when you debit the accounts and decrease when you credit them. Liabilities, equity, and revenue increase when you credit the accounts and decrease when you debit them.
Here’s a quick-reference chart you can use to get started: