You’ve heard around debits and also credits. You understand they increase and also decrease details accounts. But, exactly how much execute you know around the account they affect? There are five types of account in accounting.

If friend don’t know what they are, her crash course has arrived. 

Read on to learn around the different varieties of accounts through examples, dive into sub-accounts, and also more. 

Types of accounts in accounting 

When you buy or sell goods and also services, you must update her business accountancy books by recording the transaction in the appropriate account. This mirrors you all the money coming into and going out of her business. And, you deserve to see how much money you have actually in each account. Sort and track transactions making use of accounts to create financial statements and make business decisions. 

Generally, businesses perform their account by creating a chart of account (COA). A graph of accounts allows you organize your account types, number every account, and also easily find transaction information.

You are watching: Which one of the following is not a part of an account?

So, what space the account you have to keep monitor of? there are five main types of ledger accounts…

5 varieties of accounts 

Although enterprise have plenty of accounts in your books, every account falls under among the following 5 categories:

AssetsExpensesLiabilitiesEquityRevenue (or income)

Familiarize you yourself with and also learn exactly how debits and credits affect these accounts. Then, you deserve to accurately categorize all the sub-accounts that autumn under them.

So, how do debits and credits influence asset, expense, liability, equity, and revenue accounts? execute debits to decrease or increase these account in your books? How about credits?

Assets and also expenses boost when friend debit the accounts and decrease as soon as you credit them. Liabilities, equity, and also revenue rise when you credit transaction the accounts and decrease as soon as you debit them.

Here’s a quick-reference graph you have the right to use to gain started:

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A thorough look at the types of accounts—and their sub-accounts 

By this point, you could be wondering around all the other accounts did you do it seen and heard of. Where’s the check account? The small Cash account? The accounts Payable account? 

Rather than listing each transaction under the over five accounts, businesses have the right to break accounts down even further using sub-accounts.

Sub-accounts (e.g., checking account) display you specifically where funds space coming in and also out of. And, friend can much better track exactly how much money you have in every individual account. 

Let’s speak you do a revenue on credit. This rises the money owed to her business, not money girlfriend actually have actually on hand. Rather of debiting a basic asset account, debit your Accounts receivable account to show how much your service expects come receive.

Here are some sub-accounts you can use within asset, expense, liability, equity, and also income accounts.

Asset accounts

Assets space the physics or non-physical types of property that include value to your business. For example, her computer, organization car, and also trademarks are considered assets.

Some examples of asset sub-accounts include:

CheckingPetty CashInventory

Although her Accounts union account is money you don’t physically have, it is considered an heritage account since it is money fan to you.

Again, debits boost assets and also credits diminish them. Debit the matching sub-asset account when you include money come it. And, credit a sub-asset account when you remove money indigenous it.

Example

Let’s look in ~ an example. You sell some inventory and also receive $500. You placed the $500 in her Checking account. Rise (debit) her Checking account and decrease (credit) your Inventory account.

DateAccountDebitCredit
XX/XX/XXXXChecking500
Inventory500

Expense accounts

Expenses are prices your business incurs throughout operations. Because that example, office provides are thought about expenses.

Examples of sub-accounts that loss under the cost account category include:

InsuranceRentEquipment

Remember the debits increase your expenses, and also credits decrease price accounts. As soon as you spend money, you boost your expense accounts.

Example

Let’s speak you spend $1,000 on rent. You pay because that the cost with your Checking account. Boost your Rent expense account v a debit and also credit her Checking account.

DateAccountDebitCredit
XX/XX/XXXXRent Expense1,000
Checking1,000

Liability accounts

Liabilities stand for what your business owes. These are prices you have actually incurred but have no yet paid.

Types of company accounts that fall under the legal responsibility branch include:

Payroll tax LiabilitiesSales tax CollectedCredit Memo Liability

Accounts payable (AP) are considered liabilities and also not expenses. Why? because accounts payables are costs you have actually incurred but not however paid for. Together a result, you add a liability, or debt.

Credit liability accounts to rise them. To decrease liability accounts by debiting them.

Example

You to buy $500 of inventory on credit. This increases your accounts Payable account (credit). And, it rises the lot of list you have actually (debit). Your newspaper entry could look something prefer this:

DateAccountDebitCredit
XX/XX/XXXXInventory500
Accounts Payable500

Equity accounts

Equity is the difference in between your assets and also liabilities. It reflects you exactly how much your service is worth.

Here room a couple of examples of equity sub-accounts:

Owner’s EquityCommon StockRetained Earnings

Again, same accounts boost through credits and decrease v debits. As soon as your legacy increase, your equity increases. Once your liabilities increase, her equity decreases.

Example

You invested in stocks and received a dividend of $500. Come reflect this transaction, credit transaction your invest account and also debit your Cash account. 

DateAccountDebitCredit
XX/XX/XXXXCash500
Investment500

Revenue accounts

Last but not least, we’ve came down on the revenue accounts. Revenue, or income, is money your business earns. Your income accounts track incoming money, both native operations and non-operations.

Examples of earnings sub-accounts include:

Product SalesEarned InterestMiscellaneous Income

To increase revenue accounts, credit the equivalent sub-account. To decrease revenue accounts through a debit.

Example

Say you make a $200 sale to a customer who pays v credit. V the sale, you rise your Revenue account through a credit. And, increase your accounts Receivable account v a debit.

DateAccountDebitCredit
XX/XX/XXXXAccounts Receivable200
Revenue200

Quick-reference list of accounts in accounting

Keeping monitor of your different types of accounts in bookkeeping can it is in a challenge. Remember, you can develop a graph of accounts to continue to be organized.

Use the list below to help you identify which types of account you need in business.

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Does her accounting technique influence her accounts?

Will friend use every one of the above types of accounts in accounting?

The types of account you use count on the accounting method you choose for your business. You deserve to choose in between cash-basis, modification cash-basis, and also accrual accounting.

If you usage cash-basis accounting, execute not usage liability accounts prefer accounts payable and long-term liabilities.

Modified cash-basis and accrual bookkeeping use the very same accounts, i beg your pardon are progressed accounts such as AP and also long-term liabilities.

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What’s your bookkeeping method? whatever you decision to use, Patriot Software has you covered. Organized your different species of accounts with our easy-to-use and highly-rated audit software. Begin a totally free trial today! 

This post has been updated from its initial publication date of June 25, 2019.