Accounting
8/2/2012
Objective of Lecture 2
CLASSIFICATION OF ACCOUNTS
&
ACCOUNTING EQUATION
• By end of lecture 2, all students should be able to:(a) Understand the five categories of accounts and able to classify them into the respective categories
(b) Understand the accounting equation and the relationship between assets, liabilities and owner’s equity.
Classifications of accounts
•
•
1.
2.
3.
4.
5.
An account is used to record all information regarding an item.
The five major categories of account
Revenues
Expenses
Assets
Liabilities
Owner’s Equity
Revenue Account
•
•
Revenues are income earned by a business
Examples of revenue accounts
1.
2.
3.
4.
5.
Sales
Discount revenue
Commission revenue
Interest revenue
Rent Revenue
Asset Account
Expense Account
•
•
Expenses are costs incurred in the earning of revenue
Examples of expense account
1.
2.
3.
4.
5.
6.
Purchases
Cartage inwards
Customs duty
Delivery vehicle/ motor vehicle expenses
Discount expense
Salaries and wages
•
Assets are something a business owns which has future economic value
•
Examples of asset accounts
1.
2.
3.
4.
5.
6.
7.
8.
9.
Cash at bank
Accounts receivable
Inventories
Furniture
Motor vehicle
Equipments
Buildings
Land
Shares (investment)
1
8/2/2012
Liability Account
Owners Equity
•
•
Liabilities are items which a business owes to other people or organization
Examples of liability accounts
1.
2.
3.
Accounts payable
Loan
Mortgage
1. Capital
2. Drawings
3. Profit/Loss
•
The Accounting Equation
Assets = Liabilities + Owners’ Equity
Economic
Resources
Claims to the
Economic Resources
•
Owner’s equity is the value of any investment the owner has in the business
Example of owner’s equity accounts
Accounting Equation
ASSETS = LIABILITIES + OWNER’S EQUITY
(+Revenue – Expense)
2
Objective of Lecture 2
CLASSIFICATION OF ACCOUNTS
&
ACCOUNTING EQUATION
• By end of lecture 2, all students should be able to:(a) Understand the five categories of accounts and able to classify them into the respective categories
(b) Understand the accounting equation and the relationship between assets, liabilities and owner’s equity.
Classifications of accounts
•
•
1.
2.
3.
4.
5.
An account is used to record all information regarding an item.
The five major categories of account
Revenues
Expenses
Assets
Liabilities
Owner’s Equity
Revenue Account
•
•
Revenues are income earned by a business
Examples of revenue accounts
1.
2.
3.
4.
5.
Sales
Discount revenue
Commission revenue
Interest revenue
Rent Revenue
Asset Account
Expense Account
•
•
Expenses are costs incurred in the earning of revenue
Examples of expense account
1.
2.
3.
4.
5.
6.
Purchases
Cartage inwards
Customs duty
Delivery vehicle/ motor vehicle expenses
Discount expense
Salaries and wages
•
Assets are something a business owns which has future economic value
•
Examples of asset accounts
1.
2.
3.
4.
5.
6.
7.
8.
9.
Cash at bank
Accounts receivable
Inventories
Furniture
Motor vehicle
Equipments
Buildings
Land
Shares (investment)
1
8/2/2012
Liability Account
Owners Equity
•
•
Liabilities are items which a business owes to other people or organization
Examples of liability accounts
1.
2.
3.
Accounts payable
Loan
Mortgage
1. Capital
2. Drawings
3. Profit/Loss
•
The Accounting Equation
Assets = Liabilities + Owners’ Equity
Economic
Resources
Claims to the
Economic Resources
•
Owner’s equity is the value of any investment the owner has in the business
Example of owner’s equity accounts
Accounting Equation
ASSETS = LIABILITIES + OWNER’S EQUITY
(+Revenue – Expense)
2