Universidad Tecnológica de la Riviera Maya

Accounting and financial operations

Types of Accounts in Accounting

Citlali Guadalupe Solís Velasco

T.S.U Turismo Área Hotelería

TU32
What are the Main Types of Assets?
“An asset is a resource controlled by the enterprise as a result of past events and from which
future economic benefits are expected to flow to the enterprise.”

Examples of assets:

Cash and cash equivalents

Accounts Receivable

Inventory

Investments

PPE (Property, Plant, and Equipment)

Vehicles

Furniture

Patents (intangible asset)

Properties of an Asset

There are three key properties of an asset:

• Ownership: Assets represent ownership that can be eventually turned into cash and cash
equivalents
• Economic Value: Assets have economic value and can be exchanged or sold
• Resource: Assets are resources that can be used to generate future economic benefits

Classification of Assets: Convertibility

If assets are classified based on their convertibility into cash, assets are classified as either current
assets or fixed assets. An alternative expression of this concept is short-term vs. long-term assets.
1. Current Assets

Current assets are assets that can be easily converted into cash and cash equivalents (typically
within a year). Current assets are also termed liquid assets and examples of such are:

• Cash
• Cash equivalents
• Short-term deposits
• Accounts receivables
• Inventory
• Marketable securities
• Office supplies

2. Fixed or Non-Current Assets

Non-current assets are assets that cannot be easily and readily converted into cash and cash
equivalents. Non-current assets are also termed fixed assets, long-term assets, or hard assets.
Examples of non-current or fixed assets include:

• Land
• Building
• Machinery
• Equipment
• Patents
• Trademarks

Classification of Assets: Physical Existence

If assets are classified based on their physical existence, assets are classified as either tangible
assets or intangible assets.

1. Tangible Assets
Tangible assets are assets with physical existence (we can touch, feel, and see them). Examples of
tangible assets include:

• Land
• Building
• Machinery
• Equipment
• Cash
• Office supplies
• Inventory
• Marketable securities

2. Intangible Assets
Intangible assets are assets that lack physical existence. Examples of intangible assets include:

• Goodwill
• Patents
• Brand
• Copyrights
• Trademarks
• Trade secrets
• Licenses and permits
• Corporate intellectual property

Classification of Assets: Usage

If assets are classified based on their usage or purpose, assets are classified as either operating
assets or non-operating assets.

1. Operating Assets
Operating assets are assets that are required in the daily operation of a business. In other words,
operating assets are used to generate revenue from a company’s core business activities.
Examples of operating assets include:

• Cash
• Accounts receivable
• Inventory
• Building
 • Machinery
• Equipment
• Patents
• Copyrights
• Goodwill
• 2. Non-Operating Assets
Non-operating assets are assets that are not required for daily business operations but can still
generate revenue. Examples of non-operating assets include:

• Short-term investments
• Marketable securities
• Vacant land
• Interest income from a fixed deposit

What are the Main Types of Liabilities?

“A liability is a present obligation of the enterprise arising from past events, the settlement of
which is expected to result in an outflow from the enterprise of resources embodying economic
benefits.”

There are three primary types of liabilities: current, non-current, and contingent liabilities.

Classification of Liabilities

Main classifications of liabilities:

1. Current liabilities (short-term liabilities) are liabilities that are due and payable within one
year.
2. Non-current liabilities (long-term liabilities) are liabilities that are due after a year or
more.
3. Contingent liabilities are liabilities that may or may not arise, depending on a certain
event.

Types of Liabilities: Current Liabilities

Current liabilities, also known as short-term liabilities, are debts or obligations that need to be
paid within a year. Current liabilities should be closely watched by management to ensure that the
company possesses enough liquidity from current assets to guarantee that the debts or obligations
can be met.

Current liabilities:
 • Accounts payable
• Interest payable
• Income taxes payable
• Bills payable
• Bank account overdrafts
• Accrued expenses
• Short-term loans

Types of Liabilities:

Non-current liabilities:

• Bonds payable
• Long-term notes payable
• Deferred tax liabilities
• Mortgage payable
• Capital leases

Contingent liabilities:

• Lawsuits
• Product warranties

The Three Basic Types of Equity

• Common Stock. Common stock represents an ownership in a corporation.

...
• Preferred Shares. Preferred shares are stock in a company that have a
defined dividend, and a prior claim on income to the common stockholder. ...
• Warrants.

Expense accounts
Expenses are costs your business incurs during operations. For example, office supplies are
considered expenses.

• Payroll
 • Insurance
• Rent
• Equipment
• Cost of Goods Sold (COGS)

Revenue accounts
Revenue, or income, is money your business earns. Your income accounts track incoming money,
both from operations and non-operations.

Examples of income sub-accounts include:

• Product Sales
• Earned Interest
• Miscellaneous Income
• To increase revenue accounts, credit the corresponding sub-account. Decrease revenue
accounts with a debit.