Glossary
Account
A record of all the changes affecting one item, such as cash or sales.
What it means
A record within the ledger that summarises the debit and credit entries relating to a particular asset, liability, income, expense or capital item.
Example
The cash account records every increase and decrease in cash.
Why it matters
Accounts are where double entry is recorded and balanced before figures reach the financial statements.
In practice
An account is the basic building block of the ledger. It is traditionally drawn as a T, with debits on the left and credits on the right. Every transaction affects at least two accounts. Assets and expenses normally carry debit balances. Liabilities, capital and income normally carry credit balances.
For instance, a cash account rises with a debit when money is received and falls with a credit when money is paid out. Its balance at any moment shows how much cash the business holds.
Students sometimes confuse an account with a book of prime entry. A book of prime entry, such as the sales day book, is only the first list of transactions before they are posted. The account is the sorted, running record in the ledger where the double entry is made. Balancing an account at the period end gives the figure that later feeds the trial balance and financial statements.
If setting out and balancing T-accounts is slow for you, one of our teachers can practise it with you using exam-style transactions. Book a trial class.
Related terms
Definitions here are general accounting explanations for study. For your board's exact wording, see its official syllabus via Sources.
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