An account is a category used to summarize different types of accounting transactions. Account categories are captured on various reports to reflect your company's financial state and profitability. When you set up your company in Microsoft Office Accounting 2008 using Company Setup, you also set up your accounts. You can allow Office Accounting 2008 to set up a standard set of accounts for your business, or you can set up your accounts later.
Accounting 2008 creates required system accounts automatically when you set up your company, regardless of how you choose to set up your other accounts. You can then add balance sheet and income and expense accounts to suit your company's requirements. You can also create subaccounts under a parent account, which allows you to examine your financial results in greater detail.
For more information about the Chart of Accounts, see Chart of Accounts: options and information.
There are two main types of accounts that you can set up in Accounting 2008: balance sheet, and income and expense.
Note You cannot change the type of account after you add an account.
Balance sheet accounts
Balance sheet accounts summarize what a company owns (assets), what it owes (liabilities), and the owner's investment in the business (net worth or equity). This information is reflected on balance sheets, cash flow statements, inventory reports, and various banking reports. The following table describes the types of balance sheet accounts.
||Money that you have not yet deposited in the bank, such as undeposited funds in addition to petty cash.
||Account your company has at a bank or other financial institution.
|Other Current Assets
||Assets that are likely to be converted to cash or retired within one year, such as notes receivable due within a year, prepaid expenses, and security deposits.
||Product or service purchased or produced for sale and entered into inventory.
||Any asset that is neither a current asset nor a fixed asset, such as long-term notes receivable and long-term deposits.
||Depreciable assets purchased for use by your company, rather than for resale, such as equipment or furniture.
||Amount due for purchases made with a credit card.
||Tax obligations that the company owes to federal and state tax agencies as a result of running payroll.
||Obligations that are scheduled to be paid within one year, such as accrued or deferred salaries, customer prepayments, and short-term loans.
||Obligations that are scheduled to be paid over periods longer than one year, such as loans or mortgages.
||Balance that reflects your company's net worth (assets less liabilities).
Income and expense accounts
Income and expense accounts summarize revenues generated by your business, the costs directly related to the earning of the revenue, daily expenses incurred in the operation of your business, and other incomes and expenses, such as interest. This information is used to determine the profitability of your company.
Note At the end of your fiscal year, balances from your income and expense accounts are moved to the Retained Earnings account.
The following table describes the types of income and expense accounts.
||Revenues from the sale of products and services to your customers.
||Revenues received for something other than normal business operations, such as interest income.
||Amounts spent on products and services related to your normal business operations, for example, phone or rent.
||Amounts spent on products and services other than normal business operations, such as interest expense.
|Cost of Goods Sold
||Cost of products and services entered into inventory and then sold.
System accounts are set up automatically and cannot be deleted. You can change how these accounts are used in the Preferences dialog box.
Take care in changing system accounts. If you select Use account numbers in the Preferences dialog box, the new account number will change the account's position within its grouping in the Chart of Accounts.
- You cannot post directly to nor change the system accounts Accounts Receivable and Accounts Payable.
- You can create subaccounts only for the following system accounts: Opening Balances, Retained Earnings, Job Resell, Cash Discount Given, Cash Discount Taken, and Write Off.
Your accounts will include some or all of the following system accounts.
||Equity account containing the account balance as of the start date for your company or as an offset for a new account. Normally, this account should have a balance of zero (0) if your assets equal your liabilities plus equity (assets = liabilities + equities).
||Amounts owed to your company from sales of products and services. This account provides an overview of all customers' transactions.
||Amounts your company owes to vendors and customers for products and services.
|Sales Tax Payable
||Current Liability account for sales taxes owed.
|Cash Discount Given
||Account that reduces the Income account when a customer takes advantage of an early payment discount.
|Cash Discount Taken
||Account that reduces the Cost of Goods Sold account when you pay earlier than the due date of the bill and are entitled to a discount for the early payment.
||Cash account for amounts received but not yet deposited in a financial institution.
||Expense account for fees your company pays to the bank, for example, checking account fees, transfer charges, or returned (insufficient funds) check fees.
Equity account for accumulated net income for the history of a company excluding the current year.
Note When you close a fiscal year, all Income and Expense account balances are moved to the Retained Earnings account.
|Pending Item Receipts
||Current Liability account for amounts owed for products or services that your company has received, but the related bill has not yet been received.
||Income account for job-associated expenses that are charged to a customer.
||Account that reduces income for uncollected customer accounts.
Creating subaccounts beneath parent accounts allows you to view your financial results in greater detail. You can create up to five levels of subaccounts under a parent account. For example, you could have an account named Wages, and then create subaccounts for Wages and name these accounts Sales, Admin, and Factory. You could also create a second level of subaccounts named East, West, North, and South under each of the first level of subaccounts.
Note A subaccount must always be the same account type as the parent account.
Subaccounts differ from classes. Subaccounts allow you to examine the transactions recorded for a specific account in greater detail. A class is a way of grouping your company transactions so that you can analyze your data across all accounts by a specific identifier. You can use classes to group transactions so they appear together on reports.
When you create subaccounts, they appear in the Chart of Accounts as indented and listed below the parent accounts. The balance of a parent account is the sum of all subaccounts beneath it. You can choose to view all accounts in an aligned format by collapsing the hierarchy. In this case, a parent account will equal the sum of all postings made directly to it.
There are restrictions when you merge parent accounts and subaccounts. For more information, see Merge accounts.
Work with accounts
There are various ways you can work with accounts. To learn more, click the following links.
To learn how to print the Chart of Accounts, modify its layout, or export the data to Microsoft Office Excel, see Working with lists.