Difference between revisions of "Financial account"

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A [[financial account]] (or, simply, [[account]]; hereinafter, the ''Account'') is an accounting device used in [[bookkeeping]] to record increases and decreases of business transactions relating to [[assets]], [[liabilities]], [[capital]], [[withdrawals]], [[revenue]], and/or [[expenses]]. In other words, the ''Account'' is the [[concept]] that is used to record financial entries of a similar nature such as cash increases (debits) or decreases (credits) or, vice versa, [[accounts payable]] increases (credits) or decreases (debits). Active accounts are debited when they increase; passive accounts are debited when decrease. Every [[organization]] can establish its own list of account titles, which is called the [[chart of accounts]].
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A [[financial account]] (or, simply, [[account]]; hereinafter, the ''Account'') is an accounting device used in [[bookkeeping]] to record increases and decreases of business transactions related to [[Assets]], [[Liabilities]], [[Owner's Capital]], [[Owner's Withdrawals]], [[Fiscal Revenue]], and/or [[Expenses]]. In other words, the ''Account'' is the [[concept]] that is used to record financial entries of a similar nature such as [[Cash at Bank]] increases (is [[debit]]ed) and decreases (is [[credit]]ed) or, vice versa, [[Accounts Payable]] increases (is [[credit]]ed) and decreases (is [[debit]]ed).
  
  
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==Definitions==
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According to [[College Accounting: A Practical Approach by Slater (13th edition)‎]],
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:[[Account]]. An accounting device used in [[bookkeeping]] to record increases and decreases of business transactions relating to individual assets, liabilities, capital, [[Owner's Withdrawals]], [[Fiscal Revenue|revenue]], expenses, and so on.
  
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Classification of accounts
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==Journalizing==
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Based on nature
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:''Main wikipage: [[Journalizing]]''
  
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An account may be classified as real, personal or as a nominal account.
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===Rules of debit and credit===
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Type Represent Examples
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:{|class="wikitable" style="float:right; margin-left:10px; text-align:center;"
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Real Physically tangibile in the world and certain intangible things not having any physical existence Tangibles – Plant and Machinery, Furniture and Fixtures, Computers and Information processors, Cash accounts etc. Intangibles – Goodwill, Patents and Copyrights
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|+[[Rules of debit and credit]]
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Personal Business and Legal entities, Bank accounts Individuals, Partnership firms, Corporate entities, Nonprofit organizations, any local or statutory bodies including governments at country, state or local levels
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!Category
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Nominal Temporary Income and Expense accounts for recognition of the implications of the financial transactions during each fiscal year until finalization of accounts at the end Sales, Purchases, Electricity charges
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|Type
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!Increase *!!Decrease
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|-
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|rowspan="3"|[[Asset-origin account]]s
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![[Assets]] **
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|rowspan="3"|Debit||rowspan="3"|Credit
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|-
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![[Expenses]] **
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|-
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![[Owner's Withdrawals]]
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|-
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|rowspan="3"|[[Equity-origin account]]s
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![[Liabilities]] **
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|rowspan="3"|Credit||rowspan="3"|Debit
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|-
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![[Fiscal Revenue]] **
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|-
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![[Owner's Capital]]
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|-
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|colspan="4" style="text-align:left; background-color:#fff;"|* Besides [[Income Summary]], increase represents [[account normal balance|normal balance]]<br>** [[Adjusting account]]s behave oppositely to the ''Accounts'' that they adjust
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|}
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::''Main wikipage: [[Rules of debit and credit]]''
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:*[[Asset-origin account]]s, which include [[Assets]], [[Owner's Withdrawals]], and [[Expenses]], are debited when they increase and credited when they decrease.
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:*[[Equity-origin account]]s, which are [[Liabilities]], [[Owner's Capital]], and [[Fiscal Revenue]], are debited when decrease and credited when they increase.
  
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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 (Profit and Loss Account or Income and Expenditure Account).
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===Adjusting accounts===
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::''Main wikipage: [[Adjusting account]]''
  
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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 (profit or loss) of the revenue statement account is transferred to reserves or capital account as the case may be.
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==Chart of accounts==
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Based on periodicity of flow
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:''Main wikipage: [[Chart of accounts]]''
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Every [[organization]] can establish its own list of account titles, which is called the [[chart of accounts]].
  
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The classification of accounts into real, personal and nominal is based on their nature i.e. physical asset, liability, juristic entity or financial transaction.
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==Related concepts==
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*[[Bookkeeping]]. Recording, filing, and retrieving of [[financial data]], as well as producing those [[financial report]]s that are required by laws.
  
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The further classification of accounts is based on the periodicity of their inflows or outflows in the context of the fiscal year:
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==Related lectures==
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*[[Bookkeeping Quarter]].
  
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    Income is a short term inflow during the fiscal year.
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[[Category: Septem Artes Administrativi]][[Category: Articles]]
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    Expense is short term outflow during the fiscal year.
 
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    An asset is a long term inflow with implications extending beyond the financial period and by the traditional view could represent unclaimed income. Alternatively, an asset could be valued at the present value of its future inflows.
 
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    Liability is a long term outflow with implications extending beyond the financial period and by the traditional view could represent unamortised expense. Alternatively, a liability could be valued at the present value of future outflows.
 
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Type of accounts Long term inflows Long term outflows Short term inflows Short term outflows
 
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Real Assets
 
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Personal Assets Liability
 
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Nominal Incomes Expenses
 
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Items in accounts are classified into five broad groups, also known as the elements of the accounts:[2]
 
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    Asset, Liability, Equity, Revenue, Expense
 
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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.
 

Latest revision as of 19:25, 4 January 2019

A financial account (or, simply, account; hereinafter, the Account) is an accounting device used in bookkeeping to record increases and decreases of business transactions related to Assets, Liabilities, Owner's Capital, Owner's Withdrawals, Fiscal Revenue, and/or Expenses. In other words, the Account is the concept that is used to record financial entries of a similar nature such as Cash at Bank increases (is debited) and decreases (is credited) or, vice versa, Accounts Payable increases (is credited) and decreases (is debited).


Definitions

According to College Accounting: A Practical Approach by Slater (13th edition)‎,

Account. An accounting device used in bookkeeping to record increases and decreases of business transactions relating to individual assets, liabilities, capital, Owner's Withdrawals, revenue, expenses, and so on.

Journalizing

Main wikipage: Journalizing

Rules of debit and credit

Rules of debit and credit
Category Type Increase * Decrease
Asset-origin accounts Assets ** Debit Credit
Expenses **
Owner's Withdrawals
Equity-origin accounts Liabilities ** Credit Debit
Fiscal Revenue **
Owner's Capital
* Besides Income Summary, increase represents normal balance
** Adjusting accounts behave oppositely to the Accounts that they adjust
Main wikipage: Rules of debit and credit

Adjusting accounts

Main wikipage: Adjusting account

Chart of accounts

Main wikipage: Chart of accounts

Every organization can establish its own list of account titles, which is called the chart of accounts.

Related concepts

Related lectures

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