There are two main classes of accounts, which are derived from the balance sheet as subaccounts and subdivided as required: balance sheet accounts and profit and loss accounts.
The inventory accounts, as their name suggests, concern the raw materials, work in progress, and finished goods of a company. The asset accounts contain the tangible assets, inventories, cash and cash equivalents, and so on that are located on the asset side of the balance sheet. The liability accounts comprise the equity (business shares, reserves, annual surplus, etc.) as well as the borrowed capital (loans, outstanding invoices, and other liabilities) on the liabilities side of the balance sheet.
The equity capital of a company occupies a special position: The profit and loss accounts in accounting are sub-accounts from this balance sheet area – again divided into income accounts and expense accounts. These are mainly sales revenues – but asset growth is also included. In the expense accounts, you post expenses that reduce the company’s assets – for purchases, rent, interest, as well as wages and salaries.