An account is a record within the financial statements of an entity used to differentiate and therefore classify accounting transactions. Thus in accounting, an account is a record in a general ledger used to record transactions.
As there are many classifications of accounts each are provided an account type that is used to determine where the account will appear within the financial statements. In accounting these classifications refer to such items as assets, liabilities, owner’s equity, income and expenses.
Thus an account is generally refers to as a transactional record in an accounting system of an entity to record and report debit and credit entries. For example, accounts receivable account records information about sales to transactions to customers at the time of invoicing, then the reduction in customer’s accounts when payments are received. Conversely, the accounts payable account records information about purchase transactions from suppliers, then the reduction in suppliers accounts when payments are made.
All accounts are allocated an account number which is generally numerical. Each digit in an account number is used for classification and coding of an individual account within the chart of accounts that is used to prepare the financial statements.
While modern accounting software incorporates business templates that contain sample charts of accounts, the expectation is that the user of the software will modify these templates thus adding additional accounts to meet their specific needs. Once an entity is operational and transactions are being regularly processed, accounts can be added or deleted as the entity evolves.
Prepared by Leigh Barker Tangible Assets Financial Services, Accountant at MWC Group, Portfolio Finance, Gordon and West Pennant Hills. Note that all content of this blog is general in nature and anyone intending to apply the information to practical circumstances should seek professional advice to independently verify their interpretation and the information’s applicability to their particular circumstance.