Accounts

Explain the purpose of accounts

• The purpose of accounts is to report on financial information about the financial position and cash flows of a business. This information is then used to make decisions about what to do with the businesses money and how to run the company.

Definitions of the five different categories of accounts

• An asset is something of value that is owned by a company. It can be a current asset or long term asset.
• A liability is something that the business is going to pay like creditors or vat either as a current liability or a long term liability.
• Equity is what the owners have invested in a business. It represents what the business owes to its owners
• Revenue is the money that a business earns from selling products.
• An expense is the money that goes out of a business or the money that a business spends

The difference between capital and revenue accounts

• Capital accounts are the net of public and private international investments or the net worth of a business at a specific point in time. Revenue accounts are a equity accounts with a credit balance. Revenue accounts are rarely debited because revenue are only generated unlike capital accounts.