Introduction

As a certified public accountant, it is not unusual for me to entertain questions like, “How do you classify a transaction?” Due to the frequency with which I have to answer this question, I decided to write this short e-book to highlight the different considerations you will need to consider as a business person.

Categorizing asset transactions

Accounts provide more in-depth classification of the elements. Accounts give us more details than elements can. For example, the asset element is made up of the cash and equipment accounts. The cash and equipment accounts tells us how much we have of these types of assets. This is more information than you get by classifying all transactions into the element asset. Next, I will discuss the five elements and how to classify accounts correctly within these elements.

Categorizing liability accounts

To have a liability means that you are obliged to satisfy a debt. In simple terms, a liability is what you owe. Liabilities can take on three forms: • Cash you owe to your lenders • Cash owed for goods received but not paid • Obligations you owe your customer

Equity Accounts

Revenue

Revenue is anything you earn in exchange for providing a product, service, or an asset for use. Revenue could include cash, cows, dogs, etc. In short, anything you get back in return for providing something of value while running your business is income to you. Obviously, if you get any item other than cash, you will have to include the fair market value of the item received as income.

Expenses

Putting It All Together