Account

What is an Account?

Some accounts show where money or value came from; while other accounts show where that money or value was used or where it went.

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How it Works

The double entry accounting system is built upon a system of accounts.

Collectively, these accounts are known as the general ledger.

These accounts are used to record a business’s transactions.

Each account is divided into two sides.

Furthermore, to record a transaction, you use two or more accounts.

This is because each transaction is deemed to have two sides.

When recording a transaction, you use one account to show where money or value involved in the transaction came from.

Then you use the another account to show what that money or value was used for, or where it went.

One side of an account is known as the credit side.

You use this side if money or value has come from the account.

The other side of the account is known as the debit side.

You use this side to show where the money was used or where it went.

When recording a transaction, you ask yourself where the money or value came from.

Then you ask where the money or value was used or where it went to

For example, suppose a business paid for telephone expense.

If paying with cash, the business would withdraw money from the bank.

Then they would send that money to the telephone company.

To record the payment, you would credit the checking account with the payment amount.

This shows money came from the bank.

At the same time, you debit the telephone account.

This shows the money was used for telephone expense.

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© R.J. Hickman 2020