The five account types
Objective: Classify accounts into the five account types.
Recommended first: What bookkeeping is and why it balances
An account is a labeled record of increases and decreases for one item, such as Cash or Rent Expense. Every account belongs to one of five types.
| Type | Meaning | Examples |
|---|---|---|
| Asset | Resources the business controls | Cash, Accounts Receivable, Supplies, Equipment |
| Liability | Amounts the business owes | Accounts Payable, Wages Payable, Unearned Revenue, Notes Payable |
| Equity | The owner's claim | Owner Capital, Owner Drawings |
| Revenue | Amounts earned from customers | Service Revenue, Sales Revenue, Interest Revenue |
| Expense | Costs used up to earn revenue | Rent, Wages, Utilities, Depreciation |
Revenue and expense accounts measure performance for one period and are reset to zero at the end of each period. Asset, liability, and equity accounts carry their balances forward.
Classification questions come up constantly in practice — every bill has to be coded to an account. A quick test helps: if the business will benefit from the item in the future, it is usually an asset; if the benefit is used up now, it is an expense; if the business must give something up later, it is a liability. Revenue is always about what the business earned from customers.
Check your work
- Does the item give a future benefit (asset) or is it used up now (expense)?
- Is there an obligation to pay or deliver (liability)?
- Is this the owner's stake (equity) or earnings from customers (revenue)?
Prepaid Insurance is an asset because it is coverage the business has paid for but not yet used. When the coverage is used, it becomes Insurance Expense.
| Account | Debit | Credit |
|---|---|---|
| Insurance Expense | $100.00 | |
| Prepaid Insurance | $100.00 |
Common mistakes
✗ Classifying Unearned Revenue as revenue.
✓ It is a liability: the business owes a service it has not delivered.
✗ Classifying Supplies as an expense when purchased.
✓ Supplies on hand are an asset; Supplies Expense records what was used.
Guided practice
Use hints freely here.
Item 1 of 2
Classify: Cash
Classify the account “Cash”. Choose its account type, its normal balance, and the financial statement where it is reported.
Independent practice
Try these without hints. Completing the lesson needs at least one independent item solved without revealing the answer.
Item 1 of 5
Classify: Supplies
Classify the account “Supplies”. Choose its account type, its normal balance, and the financial statement where it is reported.
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Key terms
- Account
- A record of increases and decreases for one item.
- Asset
- A resource the business controls that is expected to provide future benefit.
- Liability
- An amount the business owes to someone else.
- Equity
- The owner's claim on the business's assets.
- Revenue
- Amounts earned from providing goods or services.
- Expense
- A cost used up in earning revenue.
References and provenance
- OpenStax, Principles of Accounting, Volume 1: Financial Accounting (accessed 2026-10-29)
Original lesson written for Bookkeeping Exercises (AI-assisted drafting). Calculations are verified by the platform's automated accounting tests. Not yet reviewed by a credentialed accountant. Updated 2026-10-29.