Balance Sheet Accounts
There are four balance sheet accounts. They are 1) Assets 2) Liabilities 3) Captial and 4) Accrual.
In bookkeeping basics, balance sheet accounts track assets, liabilities, capital and accrual. The information from these accounts flow to the balance sheet which gives the financial standing of a business on any given day.
Assets are balance sheet accounts that show what a company owns. They can also include improvements made to lease property such as office space. There are three kinds of asset accounts in bookkeeping basics:
1. Current assets are accounts that reflect what a company owns and will mostly likely turn into cash within the year. For example, after invoicing a customer for $10,000.00, that invoice is considered a current asset in the Accounts Receivable Subsidiary Ledger, and is turned into cash when the customer pays that invoice. Other examples of current assets are petty cash or funds in a bank account.
2. Fixed asset accounts reflect what a company owns that will be depreciated over a period of one year or more. Examples of fixed assets are office furniture, office or construction equipment, vehicles, buildings owned by the business or improvements made to a building or office space rented by the business. Land owned by a business is also a fixed asset even though land is not depreciated. A general rule of thumb in accounting is to depreciate items that cost $300 or more. Items that cost less than this are deducted in full during the year they are purchased.
3. Other assets are accounts that reflect items that are not depreciated but last longer than one year before turning into cash. An example of this kind of asset would be stocks that are owned by a corporation.
Liabilities are balance sheet accounts that show what a company owes. There are two kinds of liability accounts in bookkeeping basics. These are:
1. Current liabilities track items for which a company owes that are payable on a short term basis or less than a year, such as 30 day term vendor accounts. Examples of current liabilities are employment taxes such as Social Security and Medicare, or state taxes such as sales tax collected at the point of sale.
2. Long-Term liabilities track contracts for which a company owes that are payable for a period greater than one year, such as bank loans acquired by the business for such things as research and development, equipment, buildings, etc.
Accruals & Capital
In bookkeeping basics accrual or “contra-accounts” keep track of the accumulated depreciation of fixed assets and the markdown of current assets like Accounts Receivable as is the case with the Bad Debt Allowance account.
In bookkeeping basics capital accounts track owners, partner or shareholders investments into a company.
2. Owner’s Investment/Equity tracks how much a sole proprietor or partner has invested in the business whether it is cash or any other type of asset.
3. Capital Stock/Retained Earnings tracks how much a stockholder has invested in a corporation whether it is cash or any other type of asset.
4. Owner’s/Partner’s Draw tracks how much a sole proprietor or partner takes out of the business. It should be noted here that one other item which is not a balance sheet account, but which does appear in the capital section of the balance sheet is Annual Earnings, which is taken from the Profit & Loss Statement.
Retained Earnings on the balance sheet is same as Net Income on the income statement, which is total income minus expenses.