Account Groups

Video Transcription

[MUSIC PLAYING] Hey everyone, and welcome to our video today on account groups. So what are today's topics? Well, we're going to talk about accounts. We're going to talk about the different types of accounts-- whether they're permanent accounts, or temporary accounts. And then we're also going to talk about how those accounts are used.

So let's start with what is an account. It's a record that provides information about a given asset, liability, equity, revenue, or expense. And all these accounts organize into what we call a chart of accounts-- the details all of the accounts contained within a company's financial system. Now we'll come back to that.

But let's talk about the two main types of accounts. We have permanent accounts, which are our assets, liabilities, and equity. And then we also have our temporary accounts, which are our revenue and expenses.

OK, so let's go back to that chart of accounts, and let's dive a little deeper into that. So what is a chart of accounts? Well, I mentioned that a chart of accounts is a detail of all the accounts contained within a company's financial system. And it's organized by account type and categories.

So you see here on the screen, we have our asset account. So we have cash, current assets, fixed assets. Then we'll have our liabilities. Then we'll have our equity, revenue, and expenses. And it's numerically ordered. And it's a way so that a company can pinpoint specific accounts within that category of accounts. OK so that's the chart of accounts.

So now, let's go back to those two main type of accounts, and let's dive a little bit deeper into our permanent accounts. So permanent accounts-- what are they? They're accounts whose balances carry over from one accounting period to the next accounting period. And there's three categories that fall into this permanent account classification. They are assets, liabilities, and equity.

So let's look at assets. What are they? They're physical or non-physical resources-- very important-- owned by an organization that have economic value. So our assets are our physical or non-physical resources. You can think of that as your cash, inventory, equipment.

Now, let's look at liabilities. What are they? Liabilities are the debts and other financial responsibilities of an organization. So think of this as our accounts payable, loans payable, if we owe money to the bank.

And let's look at that last category, equity. What is equity? That's the remaining value, once liabilities are subtracted from assets. So we can think of this as our owner's capital accounts, retained earnings, owners draw. OK, so those are our permanent accounts.

Now, let's look at our temporary accounts. What are they? Temporary accounts are accounts whose balances are closed at the end of an accounting period, and reopened at the beginning of the next period. So they're close at the end of one period, and then reopened at the beginning of the next period.

There's two types of temporary accounts. We have our revenues. What are the revenues? Those are earnings from interest, or from the sale of goods or services. And the other type of temporary account is expenses. What are they? Those are costs associated with operating or maintaining a business.

Well, why are they temporary? Why do we consider these accounts temporary? They're activity, or period-based. So since they're closed and reopened, they're reporting on the activity for that specific period. And like I said, they're closed out annually. So they're closed at the end of an accounting period, and reopened at the beginning.

And now our revenues, when they're closed, that records all of our business' profit. So those earnings that we have. So that results in net income. And when we close out our losses, our expenses, our costs associated with operating our business, those are our losses. So that'll contribute to a net loss. And now a business can either be in the net income position, meaning revenues are greater than expenses. Or in a net loss position, where expenses exceed the revenues.

So let's bring it home. Let's summarize. In a nutshell, there are two main types of accounts. What are they? There are permanent accounts and our temporary accounts.

Let's look at that first group, our permanent accounts. The permanent accounts track three categories. They track our liabilities, our equity, and our assets.

And then we have our temporary accounts. Those track two categories. We just talked about those. They track our revenues and our expenses. I hope everybody enjoyed this video, and I hope to see you next time.