Account and Account Titles

What is an "ACCOUNT"?

When we hear the word "account" in accounting, it refers to a device being used in referring or representing a summarized group of similar values (whether received or parted with) of relatively one item only.

Meaning, say when we received or parted with a coin, paper money, bank draft, checks, money orders, or similar items, we refer them as one item only.  We group and summarize the amounts of these similar values and we represent them by one account name or account title -- cash (or cash and cash equivalents). 

What is an "ACCOUNT TITLE"?

To reiterate, an account title is the name we assign to a group of similar values of relatively one item only. In other words, we use the account title in grouping and summarizing the amounts of relatively similar values.  

However, it is important to note that the account title is unique to a business.  That we don't just give a name to an account title but we look at the chart of accounts of the entity and find the account title the business assigned to groups of similar values.  And, such naming, assigning or identification of accounts are normally explained or enumerated in the accounting manuals or policies and procedures manuals of the company.

Giving or Naming an ACCOUNT TITLE to group of relatively similar values.

The Account Title should appropriately and briefly describe the items within that account. 

The following are illustrative examples of assigning an account title to group of similar values of relatively one item only:

• Money like coins, paper money, checks, money orders, bank drafts are described as CASH.
• Chairs, tables, display counters, etc are referred to as FURNITURES & FIXTURES.
• Computers, laptops, adding machines, copiers, etc. may be called as OFFICE EQUIPMENT
• Cars, Vans, SUVs and similar items are represented as SERVICE VEHICLE.
• Amounts collectible from various customers are called ACCOUNTS RECEIVABLE
• Amounts payable to creditors are referred as ACCOUNTS PAYABLE
• Proprietor's contributions whether initial or additional, are the CAPITAL 

Once we assigned an account title to the group of similar values of relatively one item only, such account name is its identified account title forever.  Meaning, in the next transactions relating to cash, we always call them as cash regardless if we received or parted a paper money or checks (or any items belonging to cash account).

Hence, it is important to acquire the skill of recognizing each and every item belonging to an account title. Because it is important that the items inside the account are the items belonging to it.  So a bookkeeper must always refer to the entity's chart of accounts.

Click here to see discussions on CHART OF ACCOUNTS. 

Related topics:

T-Account

Account Form of a General Ledger