Now that you understand debits and credits as recording directions, let's explore how businesses organize their accounts.

Imagine trying to find a book in a library with no organization system. That's what accounting would be like without a chart of accounts!

Engagement Message

Give one reason a chart of accounts keeps business records organized.

A chart of accounts is simply a list of all accounts a business uses, organized in a logical order.

Each account gets a unique number and name, like "101 - Cash" or "201 - Accounts Payable." This numbering system makes finding and recording transactions much faster.

Engagement Message

Name one advantage of numbering accounts systematically.

All business accounts fall into five main categories. Think of these as five big filing cabinets in your accounting office.

These five types are: Assets, Liabilities, Equity, Revenues, and Expenses. Every single account belongs to one of these categories.

Engagement Message

Can you guess which category "Cash" belongs to?

Assets are things the business owns that have value - like cash, equipment, or money owed by customers.

Liabilities are amounts the business owes to others - like loans, unpaid bills, or wages owed to employees.

Engagement Message

What's an example of an asset your favorite business might own?

Equity represents the owner's claim on the business - basically what's left after subtracting liabilities from assets.

Revenues are amounts earned from selling goods or services. Expenses are costs incurred to generate those revenues.

Engagement Message

Why do you think revenues and expenses are tracked separately?

Here's where it connects to debits and credits: each account category has its own rules!

Assets increase with debits, while liabilities and equity increase with credits. Revenues increase with credits, expenses increase with debits.

Engagement Message

Which account type increases with a debit: Assets or Liabilities?

Type

Sort Into Boxes

Practice Question

Sort these common business accounts into their correct categories:

Labels

• First Box Label: Assets
• Second Box Label: Liabilities

First Box Items

• Cash
• Equipment
• Inventory

Second Box Items

• Bank Loan
• Unpaid Bills
• Wages Owed