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
As an auditor, you're trying to make sense of a firm's finances, but you're having trouble figuring something out.
Here's what you know:
- The records show a strange $797 transaction involving the investment into the company account.
What kind of account is investment into the company?
Answer:
- Investment into the company is a equity account.
Explanation:
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It often helps to think about the DEALER table.
| + DEBIT | CREDIT + |
|---|---|
| Draw | Liability |
| Expense | Equity |
| Asset | Revenue |