What is Accounts
Last Updated on
An account is a device used to record the effect of transactions on the assets,liabilities and capital of an enterprise.Every transaction affects two accounts.One account being debited and the other credited with same amount.For example ,when ever goods are purchased.Purchase Account is debited and cash account or supplier’s account is credited.
That means the asset stock-in-trade increases with every purchase.Correspondingly there will be a decrease in cash asset or an increase of liability to supplier’s.These effects debit and credit ,are recorded in the journal date-wise.
Why an account is created?
The entries in the journal ,however do not bring together in one place all the information about one item.For instance,the journal does not show at one glance the total purchases or total sales for a particular period .Nor does it show at one glance the net amount due to a supplier or due by a customer.
For this reason the purchases on different dates are sorted and arranged in a purchases account,sales effected on different dates in a sales account, and so on.
In short transactions affecting every item of assets and liabilities and those affecting capital are properly classified and summarized in the form of accounts. And in each account , the transactions affecting that accounts are so arranged as to show the total or net effect of these transactions.
Further reading: Types of accounts.