Account Types

In bookkeeping all accounts must belong to one of the six following major categories; Assets, Liabilities, Capital (Owner Equity), Profit and Loss (Retained Earnings), Income or, Expenses.

In order to simplify the process of building your chart of accounts the BasicBooks General Ledger provides specific, descriptive types under each of these six major categories to make it easy for you to automatically and properly classify the type of each new account.

When creating new accounts in The General Ledger select the account type description that best fits the kind of account you want to create. Once an account has been created the Account Type can not be changed using the BasicBooks General Ledger Account Maintenance function. The specific General Ledger types of accounts available for your selection under these six major categories are;

1.

ASSETS

• "Cash on Hand" - This is actual cash money you have on hand. (cash in a cash register, cash drawer, petty cash, etc.)
• "Bank Checking Account" or "Bank Savings Account" - These are any account on which you can write a check. Many banks (and other financial institutions) now allow you to write checks on savings accounts as well as traditional checking accounts. The BasicBooks General Ledger allows you to record checks drawn on either type of account. As far as General Ledger program functions are concerned, there is no difference between a checking and saving account. However, if you intend to use the Check Journal or Deposit Journal to journalize checks and deposits the bank account which will be effected by those journals must be either of these two types.
• "Accounts Receivable" - This is an account for recording amounts due to you from customers and others.
• "Other Asset" - This is a category for any asset which does not fit into one of the previous categories.

2.

LIABILITIES

There is no functional difference between the following types of liability accounts as far as functioning of the General Ledger program is concerned. The different type names are provided only as a convenience and to help you in designing your chart of accounts. However, if you use the BasicBooks Accounts Payable program, at least one account from this liability group is required before you can run the Accounts Payable program. Purchase invoices and payment of those invoices from the Accounts Payable program will be automatically recorded in these accounts.

• ``Account Payable'' - This account type is used to record purchases for which you have received invoices. Typically, the debts of this type must be paid in a relatively short period.
• ``Long Term Liability'' - This type is intended for tracking long term liabilities such as mortgages and other debts that are to be paid over a number of years.
• "Debt Payable (Short Term)" - This for any kind of debt you owe and intend to pay off in the Short Term. Generally, the short term is less than one year. But there is no absolute rule for how short the term is.
• "Liability (Other)" - This is the category for any amounts you owe which are not Short Term and don't logically fall into the other liability categories.

3.

EQUITY

• "Capital/Equity" - This is money, and the value of other assets, you or others contributed to the business when the business was first started. Usually, this is cash. But, it could be other items as well (e.g. vehicles, furniture, equipment, etc.). In the case of non-cash contributions it is the actual value of the items you should record in this type of account. Entries to record capital contributions should be made by entering the value of the item as a credit (negative) amount in the Capital/Equity account and an offsetting, equal debit (positive) amount in an asset account. Ordinarily there will be only one Capital/Equity account in a any chart of accounts and the total of all capital contributions are lumped together in this account.

4.

Profit & Loss

• "Retained Earnings (P&L)" - This is the account into which the profit or loss for each year is placed at the time the accounting year is closed. This account must exist before the accounting year can be closed. You may want to create multiple P&L accounts using a different one for each year's profit/loss in order to make it easier to quickly see the results of any single year. When you close the accounting year you will be able to select which P&L account the current year's results are to be stored.

5.

INCOME

There is no functional difference between the income account types below as far as functioning of the General Ledger program is concerned. The different type names are provided only as a convenience and to you help in designing your chart of accounts. The only exception is that at least one account of the ``Earned Discount'' type is required to run the BasicBooks Accounts Payable program.

• "Product Sales" or "Service Sales" - These are both sales (income) accounts. The two different types are provided as a convenience for your use in case you wish to distinguish between the two types of income. There is no difference within the General Ledger as to which type you use.
• "Miscl. Income" - This type is provided for recording income which is not from sales, e.g., rents, interest, etc.
• ``Interest Income'' - This type is provided for recording interest income.
• ``Earned Discount'' - This a special account type used mainly by the BasicBooks Accounts Payable program.

6.

EXPENSES

• "Expense Account" - There is only one type for all expense accounts. Since each expense account name will typically indicate the exact nature of the expense amount all expense accounts are grouped under this type.

TITLE ACCOUNTS

• "Title Only" - This special type is provided as convenience only. Use it as an organizational tool for the Chart of Accounts. A Title Account will never have any entries and is used for purely cosmetic purposes. Typically this is used to denote the start of one of the the six major account types in the Chart of Accounts. (1000 ASSETS, 2000 LIABILITIES, 3000 EQUITY, etc.)