Bookkeeping involves tracking all the financial activities of a business, and to do that effectively, you need to understand the most common accounts used in the Chart of Accounts. These accounts help categorize income, expenses, assets, liabilities, and equity in a way that makes financial reports accurate and meaningful.

“Bookkeeping accounts are specific categories used to organize financial transactions for proper recording and reporting.” 

Let’s explore the main types of accounts that appear in almost every business.

Asset accounts track what the business owns. Common examples include cash, which represents money in hand or in bank accounts, and accounts receivable, which is the money customers owe to the business. Inventory refers to goods available for sale, while prepaid expenses include payments made in advance, such as insurance. Other asset accounts may include equipment or furniture, which are physical items used in the daily operations of the business. These accounts increase when the business acquires something of value and decrease when those assets are either used or sold. 

Liability accounts represent what the business owes to others. Common examples include accounts payable, which refers to unpaid bills to suppliers, and loans payable, which are outstanding amounts borrowed from banks or other lenders. Taxes payable covers taxes that are due but haven’t been paid yet, while wages payable represents salaries earned by employees that are still unpaid. These liabilities increase when the business borrows money or delays payment, and they decrease when those debts or obligations are settled.

Equity accounts show the owner’s claim or stake in the business. These accounts reflect how much of the business truly belongs to the owner after all debts are paid. Examples include Owner’s Capital, which is the money the owner invests into the business, Owner’s Drawings, which represents money withdrawn by the owner for personal use, and Retained Earnings, which are profits that are kept in the business rather than distributed. Equity increases when the owner adds more funds or when the business earns a profit, and it decreases when there are losses or when the owner takes money out of the business.

Income accounts, also known as revenue accounts, track the money a business earns through its operations. Common examples include Sales Revenue, which is income generated from selling products, Service Income, which refers to money earned by providing services, and Interest Income, which includes earnings from bank interest or other investments. These accounts increase as the business brings in more revenue and serve as a key indicator of how well the business is performing financially.

Expense accounts show what the business spends to keep its operations running smoothly.   Some of the most common expense accounts include Rent Expense, which covers the cost of office or shop space, and Utilities Expense, which includes electricity, water, internet, and other essential services. Salaries or Wages Expense reflects the money paid to employees, while Office Supplies Expense tracks spending on items like pens, paper, and software. Advertising Expense covers marketing and promotional efforts to attract customers. These accounts increase whenever the business incurs a cost and play a crucial role in tracking where money is going and managing overall spending.  

✅ Bookkeeping accounts help organize financial transactions for accurate recording and reporting
✅ Asset accounts track what the business owns—like cash, inventory, and equipment
✅ Liability accounts show what the business owes—such as loans, payables, and taxes
✅ Equity accounts represent the owner’s claim—capital invested, drawings, and retained earnings
✅ Income accounts record money earned from sales, services, or interest