HOME

Your Financial Accounts

Your financial books are categorised into accounts. The accounts keeps track of all the transactions your company has performed in a year and they track the balances of all your assets and liabilities.

There are four basic types of accounts:

  1. Income Accounts
  2. Expense Accounts
  3. Asset Accounts
  4. Liability & Equity Accounts

Income and Expense Accounts

Income and expense accounts are the basis for your profit-and-loss statement. These accounts keep track of all the sales you make and all the expenses you incur.

Asset, Liability and Equity Accounts

Your asset, liability and equity accounts are the basis for your balance sheet. The asset and liability accounts track your company's assets and debts respectively, while the equity accounts track the owner's capital in the company. Equity is always equal to the company's assets less the company's liabilities.

Assets

Assets are your company's holdings. When a financial year starts the balance of your assets at the end of the previous financial year are transferred to the opening balance of the current financial year. Your assets grow or diminish by the profit or loss your company makes. You can read more about assets here.

Liabilities and Equity

The sum of your assets is equal to the sum of your liabilities and equity. This relationship is quite natural. Your assets are the total value of your company. The equity is the shareholders stake in those assets and the liabilities are other companies or persons stake in those assets. It sometimes makes sense to imagine that the liabilities you have is actually your lenders ownership of your company. For example, if your company has R100,000 in assets and you have loaned R60,000, then your share of the R100,000 is only R40,000. The rest is owned by the creditors.

You can read more about liabilities here

You can read more about equity here