Account Types

Lesson:

Being able to identify an account as an assets, liabilities, or owner equity is critical.

You need to be able to look at every change in an account and be able to understand the implications for the company.

If you know the accounting equation, you've already learned was assets, liabilities and equity are.

There are three more important types that you need to learn next:

  • Draw - Money that an owner takes out of the company
  • Expense - Money that a company has spent
  • Revenue - Money that a company received from product and service sales
You're looking over the firm's financials with a new hire and need to explain what is going on.

Here are the relevant facts:

  • The records show a strange $658 transaction involving the prepaid insurance account.
What kind of account is prepaid insurance?

Answer:

  • Prepaid insurance is a asset account.

Explanation:

    It often helps to think about the DEALER table.
    DC DEALER
    + DEBITCREDIT +
    DrawLiability
    ExpenseEquity
    AssetRevenue
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