In a nutshell: an account is a transaction category
In accounting, an account represents a category of transactions within an organisation. Examples include:
- Assets (e.g., cash and inventory)
- Liabilities (e.g., loans or accounts payable)
- Equity (owner’s equity, retained earnings)
- Revenue (e.g., sales)
- Expenses (salaries, office rent)
What is the point of categorising transactions?
Whenever a transaction occurs, it’s recorded in the appropriate accounts. Each account has a “balance”, which can either be positive (more debits than credits) or negative (more credits than debits). Categorizing transactions in different accounts makes it easier for businesses to monitor their financial activities and identify which accounts need looking at.