Question

What are the different types of accounts a company uses? Discuss with examples.

Answer 1

There are five types of accounts which the companies use, they are -

1) Assets

2) Liabilities

3) Equity

4) Revenues

5) Expenses

1) Assets - These accounts are used in order to generate future cash flows by making an investment in the beginning. For example, Equipment, Machinery, Furniture and also Cash etc.

2) Liabilities - These accounts are used to borrow money that is required financially for a company to survive or to run. For example, Accounts Payable, Notes Payable, Loans Payable etc.

3) Equity - These accounts are used to know how much investment is made from outside of the company into the company in order to grow. For example, Common stock, preferred stock etc.

4) Revenues - These accounts are used to know how much revenues or income is earned in the regular course of business or regular operations of a business. For example - sales revenue, service revenue, rent revenue, interest revenue etc.

5) Expenses - These accounts are used to know how much money is spent for the business in the regular course of business or regular operations of a business. For example - salaries expense, rent expense, depreciation expense etc.

These five accounts are the important accounts which a company uses in order to account its Operational Transactions, Investment Transactions and Financial transactions.