1. Lecture 03 Classification of Accounts
Financial Accounting
Lecture 03
Classification of Accounts

2. 5 Ways to Classify Accounts
Assets
Liabilities
Owner’s Equity
Revenue
Expense

3. Assets Asset = own Anything of value that is owned.
Used to acquire additional assets or to operate a business
Examples: cash, petty cash, supplies, equipment, accounts receivable, prepaid ,insurance

4. Types of Assets Tangible Assets Intangible Assets
Value is based on physical properties
Examples include buildings, land, machinery
Intangible Assets
Claim to future income
Examples include various types of financial assets

5. Financial Assets Marketable Securities (Bonds, notes, shares) Loans
Accounts receivable
Deposits

6. Liability Liability = Owe Amount the business owes to others
Examples: Accounts payable, notes payable, other bills unpaid.

7. Liabilities Liabilities are listed in order of maturity
Current Liabilities come due in less than a year.
Noncurrent liabilities come due after a year.
Companies desire more current assets than current liabilities – this difference is called net working capital

8. Owner’s Equity Amount owned – amount owed Assets - Liabilities
Amount remaining after the value of liabilities is subtracted from the assets
Owner’s equity – amount of business actually owned by the owner

9. Owner’s Equity 2 Most Common Accounts
1. Capital – summarize owner’s equity in business.
2. Drawing – used when an owner withdraws either cash or merchandise for personal use.

10. Revenue
Any income earned from the sale of goods or services and results in an increase in owner’s equity.
Examples: Sales, Services

11. Expense
Price paid for goods or services used to operate a business, resulting in a decrease in owner’s equity
Examples: Rent, Utilities, Advertising, Wages