Since the purpose of accounting is to register, report and provide business-related financial data to different users of such data, there is a need for some means to achieve that purpose. One of the means is called account and that is one of the most relevant terms of accounting. Let’s discuss its meaning and its importance in reality. Visit us on Penrith Accountants Near Me.
Account helps keep records of each individual asset, responsibility, equity, income and cost, and track details. Complete list of accounts used by the company for accounting purposes is called general ledger, which can vary depending on the business’ size, intent and other peculiarities. Accounts are used to classify financial details into categories and to hold all the relevant information on what happened to that category over the specified period of accounting. Because information is divided into assets , liabilities , equity, income and expenditures in the financial statements, each category of such item has separate account.
Structure And Case
Of example , cash in bank, small cash, receivable accounts, accounts payable, share capital, income from sales, operating costs, cost of products sold-all these types of accounting data would have their own separate account. What’s the account type, then? It’s the simplest way we can say, since it has two sides, that every account has a form T. The left hand is known as the Debit side. Cash side is called on the right. Growing account also has its own title. Further you can see simplified illustration.
Accounts debit and credit sides are used to represent either an rise or a decrease in any account ‘s balance. By the beginning and end of each accounting cycle both accounts should have balances on the debit or credit side, depending on the type of account, except for income and expenses accounts.
In the event that we have accounts belonging to the asset group, these accounts’ balance increases are reported on the debit side, decrease – on the credit side. At the beginning and end of the accounting period, those accounts would have debit balance. In the event that we have accounts belonging to the credit or debit group, the balance of these accounts is reported on the Credit side, decrease-on the Debit side. By the beginning and end of the accounting period, those accounts should have credit balance. When we have revenue segment accounts, the rise in revenue accounts is expressed on credit side, decrease-on debit side. This is visa vice versa for expenses accounts. It is necessary to note that sales and expenses accounts do not have opening or closing balances, because these accounts are used only for a specific duration of accounting and are closed by moving the accrued balance to the Retained Earnings account after the time.