Account

An account is a record in the general ledger that is used to collect and store debit and credit amounts. Accounts are used in the practice of double-entry bookkeeping to record transactions. Each account is assigned a unique number by which it can be identified. Accounts are classified into various types, such as asset, liability, equity, revenue, and expense accounts.

Types of Accounts

Accounts are broadly categorized into five types:

Asset Accounts

Asset accounts represent resources owned by a business that are expected to provide future economic benefits. Examples include cash, accounts receivable, inventory, and property, plant, and equipment.

Liability Accounts

Liability accounts represent obligations that a business owes to external parties. Examples include accounts payable, notes payable, and accrued expenses.

Equity Accounts

Equity accounts represent the owner's interest in the business. Examples include common stock, retained earnings, and additional paid-in capital.

Revenue Accounts

Revenue accounts represent the income earned by a business from its operating activities. Examples include sales revenue, service revenue, and interest income.

Expense Accounts

Expense accounts represent the costs incurred by a business in the process of earning revenue. Examples include cost of goods sold, salaries expense, rent expense, and utilities expense.

Double-Entry Bookkeeping

The concept of double-entry bookkeeping is fundamental to accounting. Each transaction affects at least two accounts, with one account being debited and another being credited. This system ensures that the accounting equation (Assets = Liabilities + Equity) always remains balanced.

Chart of Accounts

A chart of accounts is a listing of all accounts used in the general ledger of an organization. It provides a framework for organizing financial information and is essential for accurate financial reporting.

Related Pages

• Accounting
• Bookkeeping
• Financial statement
• General ledger
• Trial balance