Understanding your chart of accounts: Assets, income and equity; liabilities and expenses

What's the difference between these sometimes confusing accounting terms?

  • Assets are things of value that your business owns. An asset can be something tangible like cash, a building, or a piece of equipment. Or it can be something intangible, like intellectual property or goodwill.
  • Income is revenue that your business earns. This can be operating revenue from the goods or services that your business sells, or passive revenue from things like investments.
  • Expenses are the outflow of funds from your business to pay for goods and services that your business uses.
  • Liabilities are amounts that your business owes to other parties. These can be bank debts, or other things like unpaid expenses.
  • Equity is the difference between your assets and liabilities, and measures the net worth of your business.

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