account

account receivable

Any amount owed to a business as the result of a purchase of goods or services from it on a credit basis. Although the firm making the sale receives no written promise of payment, it enters the amount due as a current asset in its books. Accounts receivable constitute a major portion of the assets of many companies, and they may even be sold or pledged as collateral to obtain loans. Seealso account payable; factoring.

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Any amount owed as the result of a purchase of goods or services on a credit basis. Although a firm making a purchase issues no written promise of payment, it enters the amount owed as a current liability in its accounts. Companies often incur this type of short-term debt in order to finance their inventories, especially in industries where inventory turnover is rapid. Seealso account receivable.

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In accountancy, an account is a label used for recording and reporting a quantity of almost anything. Most often it is a record of an amount of money owned or owed by or to a particular person or entity, or allocated to a particular purpose. It may represent amounts of money that have actually changed hands, or it may represent an estimate of the values of assets, or it may be a combination of these.

Types of accounts

  1. Asset accounts: represent the different types of economic resources owned by a business, common examples of Asset accounts are cash, cash in bank, building, inventory, prepaid rent, goodwill, accounts receivable
  2. Liability accounts: represent the different types of economic obligations by a business, such as accounts payable, bank loan, bonds payable, accrued interest.
  3. Equity accounts: represent the residual equity of a business (after deducting from Assets all the liabilities) including Retained Earnings and Appropriations.
  4. Revenue or income accounts: represent the company's gross earnings and common examples include Sales, Service revenue and Interest Income.
  5. Expense accounts: represent the company's expenditures to enable itself to operate. Common examples are electricity and water, rentals, depreciation, doubtful accounts, interest, insurance.
  6. Contra-accounts: from the term ciccia, meaning to deduct, the value of which are opposite the 5 above mentioned types of accounts. For instance, a contra-asset account is Accumulated depreciation. This label represent deductions to a relatively permanent asset like Building.

Account represents financial and non-financial transactions of a firm, to know the total outcome of the investment made by investors.

See also

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