Financial accounting notes

ACCOUNT:-
A summarized record of a business transaction is called an account.
Account is concerned with some goods, services, property, person (individual) or
revenue and expense.

CLASSES OF ACCOUNTS:
Accounts are classified into three categories under English (British) approach,
i.e. real, personal, and nominal. Whereas are divided into five classes under American
approach.
The kinds of Accounts under American Approach are:
1. Assets Accounts
2. Liabilities Accounts
3. Owner Equity Accounts (Capital/Proprietorship)
4. Revenue Accounts (Income Statement Accounts)
5. Expenses Accounts (Losses Accounts)

ASSETS ACCOUNTS:
All the things and properties possessed by the business are called “assets”. Any
tangible or intangible that has a monetary value is an asset, e.g. Cash, Machinery,
Building, Account Receivables, Land, and Vehicles etc. Assets are divided into four
major categories:
(a) Current Assets (b) Non-Current Assets (c) Plant Assets (d) Intangibles
CURRENT ASSETS => Cash, Marketable Securities, Receivable (A/R, N/R), Inventories
Non-Current ASSETS => Investments, Loans Granted, Shares, Equipments
INTANGIBLE ASSETS => Copy Rights, Trade Mark, Good Will, Preliminary Expenses
FIXED ASSETS => Furniture, Machinery, Building, Land

LIABILITIES ACCOUNTS:
All the claims of the outsiders (suppliers of cash or goods and services on
credit) against the assets of the business are called liabilities accounts e.g. Account
Payable, Dills Payable, Bank over draft, Mortgage Loans etc. Liabilities are divided
into two classes, i.e. Current Liabilities and Long-Term Liabilities. Current Liabilities
are also known as Short Term Liabilities.
CURRENT LIABILITIES => Unearned Income, Expenses Payable, Accounts Payable,
Note Payable, Bank Overdraft
Long Term LIABILITIES => Bank Loan, Mortgage Loan, Debentures issued, Loans from
partners

OWNER’S EQUITY ACCOUNTS:

The claims of the owner or owners in the assets of the business are called
“O.E. accounts”. They are also known as “Capital or Proprietorship” accounts. It
can be divided into two categories, i.e. Capital Stock and Retained Earnings. O.E.
account can include Capital, Retained earnings, Reserves, and Undivided Profits.

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 Financial accounting notes

REVENUE ACCOUNTS:
All types of incomes received or accrued are called revenue accounts, e.g.
interest, commission, cash sales, income from investments, dividend from
corporations, and discount earned.

EXPENSES ACCOUNTS:
The payments made or obligations created for the benefits being received in
day to day running of the business are called expenses accounts. The maximum age of
such benefits is not more than the current year, e.g. rent, freight, carriage, cartage,
wages, and salaries etc. Expenses can be categorized into: Direct expenses, Operative
Expenses, General Expenses, and Administrative Expenses etc.

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