In every business, there are transactions related to purchases, sales, payments, expenses, etc., which are very important to manage in a systematic manner, because with their help many reports are prepared in the business. In accounting, book-keeping is used to manage all these transactions and under this, account is prepared according to the ledger.
In accounting, an account is used in the classification stage of the accounting process when transactions are classified according to their nature. An account is prepared according to the concept of the ledger and a separate account is prepared for each type of transaction such as a sales account, purchase account, bank account, cash account, etc., and all the accounts can only record the transactions related to them.
Table of Contents
What is an Account?
An account is a place where transactions are recorded in chronological order by classifying them according to their nature and the rule of ledger is applicable as it is prepared according to the concept of ledger. An account is divided into debit side and credit side so that journal entries can be recorded in it. On the debit side, all the transactions are recorded with “By” and on the credit side all the transactions are recorded with “To”.
Before recording the transactions in the accounts, the transactions are identified, then they are measured with the related currency so that the transaction can be recorded, and then they are recorded in the journal book as per the concept of the journal. When the transactions are recorded in the journal book, they are classified into different accounts. Classifying the transactions into different accounts helps in managing the transactions and further the accounting process.
Features of Account
Following are the features of the account:
1. Place:
An account is a place where transactions are recorded and all the processes are completed before recording a transaction like identifying the transaction, measuring, recording, etc. A separate account is prepared for each type of transaction so that the management of transactions becomes easy.
2. Statement:
An account is a statement because all the related transactions are recorded in it. For example, a transaction related to sales is recorded in the sales account, and similarly, a transaction related to purchases is recorded in the purchase account. With its help, it becomes easier to understand and manage the transactions as all the related transactions are recorded at one place.
3. Management:
An account helps in managing transactions because only related transactions are recorded in each account. In the journal book, all the transactions are recorded in one place due to which transactions cannot be managed there, hence transactions are managed in an account. With its help, it is easy to find out which transaction has been recorded were.
4. Systematic:
An account is systematic because all transactions are recorded in chronological order. For example, all transactions are recorded according to date, debit transactions are recorded on the debit side and credit transactions are recorded on the credit side, opening balance, closing balance, transfer balance, etc. are shown, etc.
5. To and By:
All transactions that are recorded in an account are recorded with “To” and “By” as journal entries are recorded in it. All transactions that are recorded on the debit side are recorded with “By” and all transactions that are recorded on the credit side are recorded with “To”. Doing so helps in understanding debit and credit transactions, although the ledger has a debit and credit side.
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QNA/FAQ
Q1. What is an Account?
Ans: An account is a place where transactions are recorded in chronological order by classifying them according to their nature.
Q2. Is the account divided into debit and credit?
Ans: Yes
Q3. Under which accounting process is an account used?
Ans: Classification Process
Q4. Is an account a statement?
Ans: Yes
Q5. Write the features of the account.
Ans: Following are the features of the account:
1. An account is a place.
2. An account is a statement/summary.
3. An account is systematic.
4. An account helps in managing transactions.
5. An account uses “To” and “By”.
6. An account is prepared as per the ledger.
7. An account is prepared under the classification stage of accounting.
8. An account is prepared for each type of transaction.
9. An account records only the related transactions.
10. In an account, all transactions are recorded in chronological order.
11. An account is divided into debit and credit side.
