Part 2: Main Accounts in the Chart of Accounts

Detailed Overview of Key Accounts

1. Accounts Payable (A/P):

   • Type: Liability

   • Description: Represents the amount the business owes to its suppliers or vendors for goods or services purchased on credit.

   • Example: Your company purchases office supplies for $1,000 on credit. This transaction increases your Accounts Payable by $1,000.

2. Accounts Receivable (A/R):

   • Type: Asset

   • Description: Indicates the amount that customers owe to the business, typically for sales made on credit.

   • Example: Selling products worth $2,000 on credit increases your Accounts Receivable by $2,000.

3. Bank Account:

   • Type: Asset

   • Description: Tracks all transactions passing through the company's bank accounts, like deposits and withdrawals.

   • Example: Depositing $5,000 into your business bank account increases your Bank account balance by $5,000.

4. Expenses Account:

   • Type: Expense

   • Description: Records the outflow of assets or the incurring of liabilities from operational activities.

   • Example: Paying $500 for utility expenses increases your Utility Expenses account by $500 and decreases your Bank or Cash account by the same amount.

5. Income Account:

   • Type: Revenue

   • Description: Tracks the inflow of assets, primarily from the sale of goods or services.

   • Example: Receiving $3,000 from sales increases your Sales Revenue account by $3,000 and your Bank or Cash account by the same amount.

These accounts form the core of your financial recording system, each serving a specific function in the accurate representation of your business's financial activities.