ACCOUNT

ACCOUNT

Accounting is a systematic way to record transactions. An account in bookkeeping refers to assets, liabilities, income, expenses, and equity, as represented by individual ledger pages, to which changes in value are chronologically recorded with debit and credit entries. These entries, referred to as postings, become part of a book of final entry or ledger. Examples of common financial accounts are cash, accounts receivable, mortgages, loans, PP&E, common stock, sales, services, wages, and payroll.

A chart of accounts provides a listing of all financial accounts used by particular business, organization, or government agency.

The system of recording, verifying, and reporting such information is called accounting. Practitioners of accounting are called accountants.

Types of accounts

1.      Real account

2.      Personal account

3.      Nominal account

                       

                        An account may be classified as “real, personal or as a nominal account”

Type	Represent	Examples
Real	Physically tangible things in the real world and certain intangible things not having any physical existence	Tangibles - Plant and Machinery, Furniture and Fixtures, Computers and Information Processing Equipment etc. Intangibles -Goodwill, Patents and Copy rights, Cash Accounts
Personal	Business and Entities, Bank Accounts	Individuals, Partnership Firms, Corporate entities, Non-Profit Organizations, any local or statutory bodies including governments at country, state or local levels
Nominal	Temporary Income and Expenditure Accounts for recognition of the implications of the financial transactions during each fiscal till finalization of accounts at the end	Sales, Purchases, Electricity Charges

The five account types

Double-entry accounting uses five — and only five — account types to record all the transactions that can possibly be recorded in an accounting system. There are sub-types of the following list, but all financial transactions can be recorded using these five types of accounts. The five account types are the following:

·         Balance sheet accounts:

1. Assets:    Things of value that are owned and used by the business.
2. Liabilities:     Debts that are owed by the business.
3. Equity:     The owner's claim to business assets.

·         Profit and loss accounts:

4. Revenue:     The amounts earned from the sale of goods and services.
5. Expenses:     Costs incurred in the course of business.

You must select the proper account types when entering a transaction. Using an incorrect account type can result in a report that is incomplete or that makes no sense. The balance sheet accounts are permanent accounts that carry a balance from year to year, like checking accounts, accounts receivable, and inventory accounts. The profit and loss accounts are temporary accounts which track revenues and expenses for a yearlong fiscal period and are then closed, with balances transferred to an equity account. Using an asset, liability, or equity account type for a revenue or expense transaction will result in a report that is incorrect and improper.