Every financial transaction affects at least one head of accounting. For example cash received from debtor, this transaction has two effects i.e increase in cash (asset) and decrease in debtor (asset). Following are the five accounting heads
Assets are the tangible or intangible resources controlled or owned by the business to get future economic benefits
Examples of assets
Cash, A/C receivable or debtors, notes receivable, building, plant and machinery, stock of goods, bonds and share or any kind of financial securities, patents, copyrights, franchises, goodwill, trademarks, trade names, prepaid expenses, earned or Accrued incomes etc.
2. Expenses or losses
Gross outflow of economic benefits which can be measured in money for getting services or goods. Technically expenses are events by which assets are decreased or liabilities are increased.
Examples of Expenses
Purchase of goods or services, rent, employee wages or salaries, factory leases and depreciation expenses, heating and electricity expense, repair and renewal of machinery and plant, freight and demurrage expense etc.
3. Income or gains
Gross inflow of economic benefits that can be measured in money for providing services or goods. Technically incomes are events by which assets are increased or liabilities are decreased.
Examples of incomes
Sale of goods or services, commission, discount received, profit on the sale fixed asset etc.
These are the obligations of business arisen by past transaction or event
Examples of liabilities
A/C Payable or creditor notes or bills payable, accrued interest and commission, bank loan, mortgage loan, issued bonds, unearned income, accrued tax etc.
5. Capital or owner's equity
The investment in business to set up or to run the business either in the form of cash, cash equivalent, assets or economic resources by the owner(s) of business
Examples of capital
Investment of cash or assets (machinery, plant, vehicle etc.) to start a business
Injection of cash in running business to enlarge its operations which is known as Fresh capital