Account (bookkeeping)


In bookkeeping, an account 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 sales, 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.

Classification of accounts

Based on nature

An account may be classified as real, personal or as a nominal account.
TypeRepresentExamples
RealPhysically tangibile in the world and certain intangible things not having any physical existenceTangibles – Plant and Machinery, Furniture and Fixtures, Computers and Information processors, Cash accounts etc. Intangibles – Goodwill, Patents and Copyrights
PersonalBusiness and Legal entities, Bank accountsIndividuals, Partnership firms, Corporate entities, Nonprofit organizations, any local or statutory bodies including governments at country, state or local levels
NominalTemporary Income and Expense accounts for recognition of the implications of the financial transactions during each fiscal year until finalization of accounts at the endSales, Purchases, Electricity charges

Example: A sales account is opened for recording the sales of goods or services and at the end of the financial period the total sales are transferred to the revenue statement account.
Similarly expenses during the financial period are recorded using the respective Expense accounts, which are also transferred to the revenue statement account. The net positive or negative balance of the revenue statement account is transferred to reserves or capital account as the case may be.

Based on periodicity of flow

The classification of accounts into real, personal and nominal is based on their nature i.e. physical asset, liability, juristic entity or financial transaction.
The further classification of accounts is based on the periodicity of their inflows or outflows in the context of the fiscal year:
Type of accountsLong term inflowsLong term outflowsShort term inflowsShort term outflows
RealAssets
PersonalAssetsLiability
NominalIncomesExpenses

Items in accounts are classified into five broad groups, also known as the elements of the accounts:
The classification of equity as a distinctive element for classification of accounts is disputable on account of the "entity concept", since for the objective analysis of the financial results of any entity the external liabilities of the entity should not be distinguished from any contribution by the shareholders.