Table of Contents
Introduction
Businesses keep their financial information organised by using accounts. Think of accounts as containers that categorise your transactions into different types such as assets, liabilities, equity, income, and expenses. This ensures that every aspect of your business is tracked and managed, making it easy to handle your financial data.
It's not just a matter of keeping neat, but also complying with legal requirements. In this regard, accounts are the backbone of your financial statements, providing clear insights to the relevant authorities.
They help you craft accurate budgets, boosting your business planning and promoting transparency within your organisation.
Account Categories
Reflecting the elements of accounting, Indigo Business allows you to create five main categories: Asset, Liability, Equity, Income and Expense.
Asset and Liability accounts can be Current or Non Current, depending on whether they're likely to be converted or payable within one year or after more than one year.
Both Income and Expense accounts are divided into Operating and Other Income (Or Expenses).
Expand the collapsible sections below 👇 to see definitions and examples.
Asset and Liability Account Details
Asset and Liability Account Details
Account Category | Definition | Examples Current | Examples Non Current |
Asset | What a business owns or controls which is expected to bring future benefits. These benefits come from past transactions or events. Note: involved in preparing the Balance Sheet for your business. | ||
Liability | What a business owes to third parties in the future. These obligations arise from past transactions or events and are used to buy assets or provide services to other entities. Note: involved in preparing the Balance Sheet for your business. |
Equity, Income and Expense Account Details
Equity, Income and Expense Account Details
Account Category | Definition | Examples |
Equity | Equity is the residual value of an entity's assets after deducting all its liabilities. It also represents the net funds invested into a business by its owners. | |
Income | Used to keep track of the money a business makes from selling products or services (operating income). They help measure the business's profitability and facilitate decision-making. | |
Expense | Used to track and record all the costs and expenses a business incurs during its operations, whether they're tied to the core business activities (Operating Expenses) or not (Other Expenses). Both Operating Expenses and Other Expenses can be:
Note: Expense accounts are involved in preparing the Income Statement (Profit & Loss). |
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Regular or Control Accounts?
To answer this question we need to first say that Regular and Control are Account Types.
A regular account (also called a subsidiary account) records individual transactions for specific items or entities. They're typically used for cash transactions where no customer or supplier tracking is needed.
A control account can be considered a master account that summarise the total balances of other related regular accounts.
They're often related to purchases and sales as they welcome their automatic journals. You can occasionally post against them, such as when creating VAT Journals against the VAT Control Account.In other words, a control account contains an overall view of the total balances, while a regular account contains specific transaction data that doesn’t require clients and suppliers tracking (e.g. rent expense, utilities, bank charges etc.).
Now, when posting a sale or a purchase, you have two choices:
Posting straight into your nominal ledger. Only regular accounts are involved.
This happens for sales or purchases made for cash.
Sales in cash: debit the Cash Account (regular asset) and credit the Income Account (regular).
Purchases in cash: credit your Cash Account (regular asset) and debit your Expense Account (regular).
Posting into sales or purchase modules. A regular and a control account are involved when automatic journal entries are triggered.
For example, this happens for sales or purchases made on credit.
Sales on Credit: once you allocate the sales invoice (the client pays the invoice), the system will automatically debit the Accounts Receivable (control) account and credit the Income Account (regular) in the nominal ledger.
Purchases on Credit: once you allocate the purchase invoice (you pay the invoice to the supplier), the system will automatically credit the Accounts Payable (control) account and debit the Expense Account (regular).
Buying and selling on credit can get tricky in accounting. Using the Accounts Receivable (Debtors Account) and Accounts Payable (Creditors Account) control accounts for your postings, can efficiently help you manage and monitor your overall financial obligations and receivables. For the detailed transactions simply check the sales and purchase modules.
In fact, you won't have to check each individual account as you'll quickly have access to the total amount owed by all customers and owed to all suppliers.
These figures will then be presented into a Balance Sheet, ensuring that Assets will equal Liabilities + Equity.
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