Quick overview of accounting terminology and how accounts are constructed.
Legal Entity
A Legal Entity is a term used by the Government to identify who should pay tax and how much i.e. a person or a Limited Company or Partnership.
Account
Accountants use the term Account to record different types of financial transactions of a Legal Entity.
A set of Accounts can number in the hundreds, depending on the complexity of the Legal Entities operations.
Accounts can contain sub-accounts; providing a mechanism to construct sub-totals for reporting and understand-ability
The Accounting Formula describes how different types of account are related to each other.
Credit Accounts
A Credit Account contains a record of money that is owned by the Legal Entity.
Examples include:
your wallet/purse; known as "cash-in-hand"
Your Bank Account
Things you own (Known as Assets); like your Car or House
A positive value in a Credit Account means the account is in Credit
A negative value in a Credit Account means the account is in Debt
Debit Account
A Debit Account contains record of money that is owed by the Legal Entity.
Examples include:
A loan
A Mortgage
VAT
A positive value in a Debit Account means the account represents a Debt
A negative value in a Debit Account means the account represents a Credit
Ledger