Basic ABC’s of Bookkeeping

There are five basic accounting classifications:  Assets, Liabilities, Capital, Expenses and Revenues. All transactions will fall into one of these categories.

ASSETS: This refers to what the business owns. It can include buildings, office equipment (such as computers, printers, credit card machines, etc.), furniture, accounts receivable, checking accounts, inventory, etc. Asset accounts are part of the Balance Sheet.

LIABILITIES: This refers to what the business owes and has not paid. It can include accounts payable for amounts owed to supplier/vendors, bank loans, company vehicle loans, etc. It refers to whatever the business has to repay. Liabilities are part of the Balance Sheet.

CAPITAL: This is what the owner contributes to or invests in the business and will be part of the Equity section of the Balance Sheet. Equity is the value of the business that belongs to the owner. For example, each year’s earnings become equity.

REVENUES: This is money that comes into the business, usually from sales of products or services. Revenues, which can also be known as sales income, are shown on the Income Statement, also called the Profit and Loss Statement (P&L).

EXPENSES: This is money that goes out of the business, usually on a regular basis. It can include wages, rent, utilities, postage, office supplies, etc. Expenses are what it costs to keep the business operating on a continual basis. Expenses are part of the Income Statement.

Deducting expenses from revenues results in the profit or loss of the business.

By using a good software program such as QuickBooks, you can minimize your bookkeeping worries.

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