Part 1 · Keeping the books · Chapter 1.3
Accounts
Draft: the wording may change.
The idea
An account is a named bucket that holds one kind of money: Cash, Sales, Rent, Ravi Stores. Every account in every business is one of five types.
The five types, through a family's finances
| Type | Means | In a family | In a business |
|---|---|---|---|
| Asset | What we own or are owed | Gold, the house | Cash, bank, stock, customers who owe us |
| Liability | What we owe | The home loan | Suppliers we owe, GST payable, salary payable |
| Equity | The owner's share | What is truly the family's after loans | Capital, profit kept in the business |
| Income | Money earned | Salary | Sales, discount received |
| Expense | Money spent to earn | Groceries, EB bill | Rent, salary, freight |
Accounts are arranged into groups — Sundry Debtors, Sundry Creditors, Bank Accounts, Direct Expenses — and the full list is the chart of accounts. The groups decide where each account appears in the reports.
Customers, suppliers and staff are accounts too. Chapter 1.6 shows why one party can need more than one account.
Account is not ledger
These two words are mixed up everywhere, so it is worth fixing them early.
- The account is the identity. Its name, its type, its group; for a party, also the GSTIN, phone number and credit limit. It exists even before any transaction, and it rarely changes. Like your bank account number.
- The ledger is the story. Every entry made to that account, by date, with a running balance. It grows with every transaction. Like your passbook.
Tally calls accounts "ledgers". When Tally says create ledger, it means create account.
Common mistake
Calling a customer advance an asset. If a retailer pays us ₹2,000 before any bill, we owe them goods or the money back — it is a liability until the bill is raised.
Where you'll use this
In Part 3, a stockist handling several brands keeps separate accounts for each company's purchases, claims receivable and scheme credits. Getting the type right decides whether a pending claim shows as money we are owed or money we owe.
Check yourself
- Which type of account is GST payable?
- Is "salary paid to the salesman" an expense or a liability?
- In one sentence, what is the difference between an account and a ledger?
Answers
- Liability — we owe it to the government.
- Expense once paid for the month's work; salary still to be paid is a liability (salary payable).
- The account is the name and identity; the ledger is the dated list of everything posted to it.