Today’s lesson, the meaning of account will be explained. Before I begin, you need to know that the term account is different from accounting. An account is never the short form or abbreviation of accounting.
Meaning of account
The definition of account is explained below:
Account is a page in a ledger that contains in a summarized format past event or condition.
It can also be defined as a part of a ledger that fulfills all aspects of the double-entry principle.
Also, it can be referred to as a single part of a chart of account in a computerized accounting system.
Explanation of the definition
Account, as defined, is a page in a ledger. A ledger is a book. This book contains several accounts for each transaction that took place in an entity. Since most firms don’t operate manual bookkeeping, a chart of accounts has replaced the use of ledger books.
An account exists in a firm accounting information system as a result of past events. For example, “the sales of goods for cash” is an event that already occurred. This transaction is thereby recorded in two accounts.
An account or accounts is the medium through which the double-entry principle is applied. To illustrate using the earlier example, the transaction must be recorded double times. This means that in a single transaction, a minimum of two accounts will be opened to record such an event. The double entry principle will be explained in a future lesson.
In a computerized accounting information system, the use of ledger books is disregarded. Instead, the accounting package is customized to suit the firm’s line of work. However, must trading and service firm can easily use a general accounting package like the Sage 50 and QuickBooks. However, where a special chart of accounts is necessary for a particular firm, such an entity may go for Enterprise Resource Planning, ERP package.
Finally, when you held the word “account”, you may think of a bank account. Yes, your bank account is an account in the bank you keep your money. Transactions in that account are recorded as a result of past events, say you deposit money into your account. Such an event is recorded in your account in the bank.
Next, the classifications of accounts will be discussed.