What are Accounts

We need to set up an account for anything that we wish to report information on. The account is where we store information regarding transactions involving this item. If you go through the chart of accounts for the practice set you will see the types of things that we have accounts for. You can also look at reports for any company to get a feel for the types of accounts we have. In particular notice the commonalities. For example common asset accounts include: Cash at Bank, Accounts Receivable, Inventory and Equipment.

The general ledger is where accounts reside.

Chart of Accounts

Is a list of all accounts and their associated account numbers. An example of this is seen in the practice set. You will notice that the chart of accounts is in the order of the accounting equation: Assets, Liabilities, Owners Equity (capital), Capital Introduced, Drawings, Revenue and Expenses. Within Assets and Liabilities the chart of accounts is also in the order of Liquidity. See the section on Current and Non-Current for a bit more guidance on this. While each business will have its own chart of accounts it is necessary that the order of this chartcomplies to these conventions.

Structure of an Account

If you go to the Practice Set General Ledger you will see the basic structure of the account. The three core items are

  1. The name of the account (and mostly now it will also have a number)
  2. Place for recording increases to the account (Dr column for Assets, Drawings and Expenses and the Cr Column for Liabilities, Owners Equity, Capital Introduced and Revenue)
  3. Place for recording decreases to account.

It is also likely to other items such as date of transaction, references and descriptions.

Elements (see Accounting Elements)

Accounts can be grouped as elements. These elements are

  • Assets
  • Liabilities
  • Owners' Equity
  • Capital Introduced
  • Capital Withdrawn (Drawings)
  • Revenue
  • Expenses