What is Account in Accounting
An account is a record on a page, most likely a ledger, that is used to post transactions relating to a particular event. It is used to enter monetary events that occur in a business entity.
The importance of having a set of accounts in a business arises because of the need for business owners to know the financial results of the entity. It is also a result of company laws that force owners of businesses to ensure that the financial activities of the entity are recorded.
Accounts are pages in a ledger (ledger can be manual or computerized) that is used to record business transactions.
In traditional accounting, accounts are pages in the ledger. Therefore, an account relating to sales can be found in the ledger. The use of counting software in modern times, these ledger accounts are programmed into the software.
Types of Accounts
There are generally two types of accounts, personal and impersonal accounts. Impersonal accounts are further divided into real, nominal, and intangible accounts.
Personal account:
As the name suggests, these are accounts of persons. By persons we mean humans and corporate bodies (businesses). Names of persons and names of business entities can be used to represent an account of a business. For example, if a business buys fuel from MRS Plc on credit terms, the company MRS Plc will be in the books of accounts of the buying company. Also, if one Mr Christopher Odili buys from the business, the name is included in the ledger books.
Examples of personal accounts
- Share capital account
- Drawings
- Bank accounts such as Zenith Bank, first bank
- Customer and supplier accounts such as Mr Christopher Odili.
Impersonal accounts
These are accounts of non-persons. Items of tangible and intangible nature are categorized here. Also, items of income and expenses that are recurring or non-recurring are tagged under these headings. Impersonal accounts can be real, nominal, or intangible accounts.
Real accounts
Real accounts are those of tangible assets. Such as a car, land and building, furniture and fittings, inventories, equipment, investments, and plants.
Nominal accounts
Also referred to as general accounts. These are accounts of income, liabilities, and expenses. Sales accounts, contract liabilities, deferred tax liability, and electricity bills are examples.
Intangible accounts
Intangible accounts are accounts of items that cannot be seen or touched. This includes software, domain names, trademarks, copyright and so on. To qualify as untangles they must be purchased or built by the entity.
