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Account Types

Ledgerly uses five fundamental account types based on standard accounting principles. Understanding these types is essential for proper categorization.

The Five Account Types

1. Asset

What it represents: Things you own or money you're owed

Examples: - Cash - Bank accounts (checking, savings) - Investments (stocks, bonds, mutual funds) - Property (real estate, vehicles) - Accounts receivable

Behavior: - Debit increases the account (money/assets coming in) - Credit decreases the account (money/assets going out)

Balance: Usually positive (you own assets)

2. Liability

What it represents: Money you owe to others

Examples: - Credit card balances - Loans (personal, auto, mortgage) - Accounts payable - Taxes owed

Behavior: - Debit decreases the account (paying off debt) - Credit increases the account (borrowing more)

Balance: Usually positive (you owe money)

3. Equity

What it represents: Your net worth (Assets - Liabilities)

Examples: - Opening balances - Retained earnings - Capital contributions - Owner's equity

Behavior: - Debit decreases equity (losses, withdrawals) - Credit increases equity (gains, contributions)

Balance: Can be positive or negative

4. Income

What it represents: Money coming into your accounts

Examples: - Salary - Freelance income - Investment returns (dividends, interest) - Rental income - Business revenue

Behavior: - Debit decreases income (refunds, reversals) - Credit increases income (money earned)

Balance: Usually positive (income increases net worth)

5. Expense

What it represents: Money going out of your accounts

Examples: - Food & Dining - Transportation - Utilities - Rent/Mortgage payments - Entertainment - Healthcare

Behavior: - Debit increases expenses (spending money) - Credit decreases expenses (refunds, reversals)

Balance: Usually positive (expenses decrease net worth)

Account Type Summary

Type Increases With Decreases With Effect on Net Worth
Asset Debit Credit Positive
Liability Credit Debit Negative
Equity Credit Debit Positive
Income Credit Debit Positive
Expense Debit Credit Negative

Choosing the Right Account Type

When creating an account, ask:

  1. Is this something I own? → Asset
  2. Is this something I owe? → Liability
  3. Is this money coming in? → Income
  4. Is this money going out? → Expense
  5. Is this my net worth? → Equity

Common Mistakes

❌ Wrong: Creating "Salary" as an Asset ✅ Correct: "Salary" should be Income

❌ Wrong: Creating "Credit Card" as an Expense ✅ Correct: "Credit Card" should be a Liability

❌ Wrong: Creating "Savings Account" as Income ✅ Correct: "Savings Account" should be an Asset

Account Hierarchy

Accounts can be organized hierarchically:

Assets
├── Cash
├── Bank
│   ├── Checking
│   └── Savings
└── Investments
    ├── Stocks
    └── Bonds

Expenses
├── Food & Dining
│   ├── Groceries
│   └── Restaurants
└── Transportation
    ├── Gas
    └── Public Transit

This hierarchy helps organize your finances and makes reporting easier.