What is an account

What is an account

1. What is the purpose of an account?

   • An account refers to the assets, liabilities, income, expenses and equity represented by individual ledger pages.
     • What is a ledger? A book or other collection of financial accounts.
   • Values are chronologically recorded with debt and credit entries, these entries referred to as postings become part of a book or final ledger.

2. 5 different categories of accounts.

   • Asset - An asset is the money owed to a company and track funds that are received and not yet deposited into the account.
   • Liabilities - liabilities are accounts payable: money that the company owes to other companies for example bank loans.
   • Equity- Equity is money you put into the business to pay for assets, also known as Capital.
   • Revenue - Revenues are sales events outside the company, interest, income, money that goes into the business as a result of good services sold.
   • Expenses - money that goes out of the business that pays for operations. paying back loans, asserts and dividends are not expenses but costs of goods ARE expenses.
     • What is a dividends? a sum of money paid regularly by a company to a share holders, paid out of profits or reserve.

3. What is the difference between capital and revenue?

   • Capital - Capital requires a debit to the fixed asset accounts and credit to the accounts payable. Capital deals with long term things such as land, and machines. capital is also used in business when the business spends money to buy assets or add value to the existing.
   • Revenue - Revenue accounts are day to day expenses in a firm/ short term, day to day/ weekly/ monthly.
   • Capital - raises the earning capacity of the business.
   • Revenue - maintains the earning capacity of the business.