What are the 5 Elements of Accounting? On your own words, define each.

1. Assets
- These are the tangible and Intangible things that the corporation or the organization
owns.
Cash Includes bills and coins on hand
Bank deposits Cash kept in depository accounts
Prepaid expenses Any prepaid amounts that have not yet
been consumed
Trade accounts receivable Receivables from the organization’s
customers
Notes receivable Notes from other parties. Common
source is accounts receivable that have
been converted into notes.

2. Liabilities
- The money that the company or organization owns
Current Liabilities (short -term) Liabilities that are due and payable
within one year
Non-current Liabilities (long-term) Liabilities that are due after a year or
more
Contingent Liabilities Liabilities that may or may not arise,
depending on a certain event

3. Equity
- The net worth of the company or the owner’s financial share of the company
Common stock Represents the owner’s or shareholder’s
investment in the business as a capital
contribution.
Preferred stock Type of share that often has no voting
rights, but is guaranteed a cumulative
dividend.
Additional paid-in capital Another term for contributed surplus
Contributed surplus Represents any paid amount over the par
value paid by investors for stock
purchases that par value
Retained Earnings Portion of the net income that is not paid
out as dividends to shareholders.

4. Revenue or Income
- The earned money of the corporation or organization through their products
 Sales Account Income from the main activities known
as operating activities
Interests Income Account These incomes are earned from the
saving activities performed or
undertaken by the entities during the
year.
Rent Income Account If a company has the main object of its
business as renting activities, this rental
income account would be called
an Operating Income Account/ Sales
account.
Dividend Income Account These are generally incomes earned on
Investments in Indian Companies or
Foreign Companies by the entities.
Professional Income Account the Income from professional activities
such as Commission Income, and
Service Fees for Services provided, are
recorded. This is also the Income from
the main operations of the entity and is
recorded under this head, therefore
known as Operating Revenue Account.

5. Expenses
- The money that is being spent by the company or the organization
Cost of Sales Refers to the expenses that are necessary
to make a sale. Can be viewed as
expenses that can be directly attributed
to the generation of revenue
Operating expenses These expenses that cannot be directly
attributed to sales. These expenses are
necessary for the continued operation of
the business
Financing expenses Are cost related to financing activities,
particularly borrowing from
creditors/lenders
Non-operating expenses Expenses outside of its operating
expenses. This could be other expenses
such as losses from one-time transaction
Prepaid expenses Business pays for its expenses in
advance the amount paid is not
recognized as an expense but rather an
asset which is referred to as prepaid
expenses.
The basic accounting equation formula is Assets = Liabilities + Equity. This equation states that
the total value of an entity's assets must equal the total value of its liabilities plus its equity.