When I work with companies, I usually find an employee who is hungry for all the knowledge I can share and they appreciate the basics. One of the accounting basics I share that seems to be appreciated is a very basic description of the types of accounts in the general ledger. If you number your accounts, or use the standard numbering for your chart of accounts, this theorey will be correct. If your numbering system is a bit different, the numbers may vary but the structure is the same. See what you think:
Basic description of the general ledger acccount types:
- 100 accounts are Assets. Things that you own or people owe you.
- 200 accounts are Liabilities. Liabilities are what you owe to others.
- 300 accounts are Equity. Equity is the worth of your business.
- 400 accounts are Income Accounts. Income or Revenue for the current year only.
- 500 accounts are Cost of Goods Sold Expense Accounts. This is the cost for what you buy to make the money listed as Income on your Profit and Loss. This is the cost for the current year only.
- 600 accounts are Overhead expense accounts. This could include shop and warehouse expenses or equipment expenses for the current year.
- 700 accounts are General Administrative expense accounts. This is the cost of keeping your office open, rent, office supplies, utilities, office salaries and wages, etc. for the current year.
- 800 and 900 accounts may include other accounts not listed above, such as Other Income, Interest Expense, Federal and State Taxes, only for the current year.