General Ledger Accounts

The accounts that are used to sort and store transactions are found in the company'sgeneral ledger
ledger is often arranged according to the following seven classifications. (A few examples of the related acco
titles are shown in parentheses.)
1.
2.
3.
4.
5.
6.
7.

Assets (Cash, Accounts Receivable, Land, Equipment)

Liabilities (Loans Payable, Accounts Payable, Bonds Payable)
Stockholders' equity (Common Stock, Retained Earnings)
Operating revenues (Sales, Service Fees)
Operating expenses (Salaries Expense, Rent Expense, Depreciation Expense)
Non-operating revenues and gains (Investment Income, Gain on Disposal of Truck)
Non-operating expenses and losses (Interest Expense, Loss on Disposal of Equipment)

Balance Sheet Accounts

The first three classifications are referred to asbalance sheet accountssince the balances in these
reported on the financial statement known as the balance sheet.
1. Assets
2. Liabilities
3. Stockholders' (or Owner's) equity

The balance sheet accounts are also known as permanent accounts (or real accounts) since the balances in the
accounts will not be closed at the end of an accounting year. Instead, these account balances are carried forward
to the next accounting year.

Income Statement Accounts

The four remaining classifications of accounts are referred to as income statement accounts since the amounts i
these accounts will be reported on the financial statement known as the income statement.
1.
2.
3.
4.

Operating revenues
Operating expenses
Non-operating revenues and gains
Non-operating expenses and losses

The income statement accounts are also known as temporary accounts since the balances in these accounts wil
be closed at the end of the accounting year. Each income statement account is closed in order to begin the next
accounting year with a zero balance.

The year-end balances from all of the income statement accounts will be combined and entered as a single net
amount in Retained Earnings (a balance sheet account within stockholders' equity) or in a proprietor's capital acc

Note: If an account has not had any activity in the current or recent periods, it is often omitted from the current g

Chart of Accounts

The chart of accounts is simply a list of all of the accounts that are available for recording transactions. This mea
that the number of accounts in the chart of accounts will be greater than the number of accounts in the general
ledger. (The reason is that accounts with zero balances and no recent entries are often omitted from the general
ledger until there is a transaction for the account.)

The chart of accounts is organized similar to the general ledger: balance sheet accounts followed by the income
statement accounts. However, the chart of accounts does not contain any entries or account balances.
The chart of accounts allows you to find the name of an account, its account number, and perhaps a brief
description. It is important to expand and/or alter the chart of accounts to accommodate the changes to an
organization and when there is a need for improved reporting of information.
Accounting Basics(Quiz)

1. The financial statement that reports the revenues and expenses for a period of time such as a year or a month
Income Statement
2. The financial statement that reports the assets, liabilities, and stockholders' (owner's) equity at a specific

Balance Sheet
3. Under the accrual basis of accounting, revenues are reported in the accounting period when the
Service Or Goods Have Been Delivered
4. Under the accrual basis of accounting, expenses are reported in the accounting period when the
Expense Matches The Revenues Or Is Used Up
5. Revenues minus expenses equals

__________

Net income

.
6. Resources owned by a company (such as cash, accounts receivable, vehicles) are reported on the balance sh
Assets

7. Assets are usually reported on the balance sheet at which amount?

Cost
8. Obligations (amounts owed) are reported on the balance sheet and are referred to as
Liabilities

9. Liabilities often have the word

__________ in their account title.

Payable

10. Unearned Revenues is what type of account?

Liability

*** The company that is to perform the service or is to deliver the product has received the cash in advance and therefore has an obligatio

11. Accounting entries involve a minimum of how many accounts?

Two
12. The listing of all of the accounts available for use in a company's accounting system is known as the
Chart of accounts

13. Assets minus liabilities equals

stockholders' equity or owner's equity

14. Which term is associated with "left" or "left-side"?

Debit
15. Which term is associated with "right" or "right-side"?
Credit
16. When cash is received, the account Cash will be
Debited
17. When a company pays a bill, the account Cash will be
Credited
18. What will usually cause an asset account to increase?
Debit
19. What will usually cause the liability account Accounts Payable to increase?
Credit
20. Entries to expenses such as Rent Expense are usually
Debits
21. Entries to revenues accounts such as Service Revenues are usually
Credits

y'sgeneral ledger. The general

amples of the related account

e the balances in these accounts are

s) since the balances in these

alances are carried forward

counts since the amounts in

ances in these accounts will

d in order to begin the next

nd entered as a single net

in a proprietor's capital account.
omitted from the current general ledger.

ding transactions. This means

of accounts in the general
n omitted from the general

nts followed by the income

ccount balances.

and perhaps a brief

te the changes to an

e such as a year or a month is the

ner's) equity at a specific date is the

iod when the

riod when the

reported on the balance sheet and are referred to as

ce and therefore has an obligation (liability) to deliver the service or the product.

m is known as the