How are accounting accounts or bookkeeping accounts classified?
Do you know how accounting accounts orbookkeepingaccounts are classified? We know it sounds redundant. However, it is the way in which companies keep an orderly record of all business operations that have an impact, at the accounting level, on their net worth.
The issues involved in accounting management within a company require the utmost rigour and mastery if you want to ensure the smooth running of your business. Hence the importance of knowing how to identify, manage and control your accounts.
Since there are several concepts that need to be mastered in order to clearly understand the accounting accounts and how they are grouped, throughout this article we will include and review some notions that will allow you to further optimise your accounting process.
Without further ado, let's get started 👇.
Accounting accounts? What are they?
Accounting accounts are the way companies identify and classify their business operations, so that their accounting process can be carried out in the clearest and most efficient way possible.
This recording of transactions, which consists of a number or code that is assigned to each group, is carried out taking into account:
- the type of operation (classification according to the nature of the operation: purchases, taxes, depreciation, etc.),
- the chronological order (classification according to the date on which they are generated).
How are accounting accounts classified?
1. Real accounts
These accounts are of a permanent nature, i.e. they remain active or open for more than one accounting period. This is where you find the sub-accounts that refer to the assets, liabilities and capital of the company.
They are called actual because they provide a true picture of the company's Statement of Financial Position.
2. Nominal accounts
These accounts, unlike the actual accounts, do not remain permanently open, but are closed at the end of each accounting period.
The sub-accounts recorded here then correspond to the costs, expenses and revenues for a specific accounting period and are mainly useful for analysing the income statement.
How are the accounting accounts grouped?
There are 9 groups into which the PGC classifies the accounts, according to their type. For each account belonging to one of these groups, there is a number and a name.
| Group | Name |
| 1 | Core funding |
| 2 | Fixed assets |
| 3 | Stocks |
| 4 | Creditors and debtors |
| 5 | Financial accounts |
| 6 | Purchases and expenses |
| 7 | Sales and income |
| 8 | Equity expenses |
| 9 | Income from shareholders' equity |
Group 1. Basic financing
This group comprises all accounts relating to the long-term financing of the enterprise, i.e. what will constitute its capital. Some of the sub-accounts that are part of this group are: shares or participations, reserves, grants, donations and adjustments for changes in value.
Group 2. Fixed assets
This group includes the tangible and intangible assets of the company, which last beyond the economic cycle. For these it is necessary to consider their eventual loss of value. As subcategories, we could mention: machinery, furniture, investments in land and natural assets.
Group 3. Stocks
Stocks refer to the raw materials necessary for the activity of the company, but also includes everything related to packaging, waste, recovered materials, finished or semi-finished products.
Group 4. Trade accounts payable and receivable
This group reflects both tax and social obligations, as well as the rights arising from the company's commercial activity. This group therefore includes suppliers, customers, creditors and debtors.
Group 5. Financial accounts
All short-term financial obligations that the company may be subject to and that are part of its treasury process should be recorded here. In other words, everything related to cash, liabilities, shares and debts is collected in this group.
Group 6. Purchases and expenses
This group includes all purchase transactions carried out by the company within the framework of its activity and for which it is necessary to indicate their possible loss of tangible, intangible and financial value. This group includes subcategories relating to non-current assets, insurance premiums, taxes and other external services such as leases.
Group 7. Sales and income
This group includes everything that came into the enterprise as a result of sales and income, either because they constitute financial profits or excesses in past accruals. In this sense, it includes discounts, subsidies, reversals and any other type of income.
Group 8. Expenses charged to equity
Expenses charged to equity are those economic operations that have a negative impact on the company's equity. These can be translation differences, taxes, transfers and impairment of equity interests.
Group 9. Income recognised in equity
This group is used to detail transactions that reflect possible increases in equity due to tax rules or financial markets. Such income includes subcategories such as transfers of losses on financial assets or gains on investment hedges.
Other basic concepts
1. Assets
This is the account of everything that the company owns and that contributes to its economic development.
It includes, for example, machinery and real estate, money in the bank, money owed by customers who have not yet paid (trade receivables) or stocks of raw materials or products that will soon be sold.
They are classified on the balance sheet according to the speed with which the company can convert them into cash.
2. Liabilities
Contrary to assets, liabilities are the account of all financial obligations of the company.
It is the money that the company owes to investors (shareholders, partners, etc.), to which other amounts owed are added: loans to the bank, debts to suppliers, employees' salaries, state taxes.
3. Equity
It represents the results obtained at the end of the activity (assets minus liabilities) and includes all the contributions that were made by the partners (share capital, reserves, etc.).
4. General accounting plan (GAP)
A general accounting plan is a document that sets out the accounting rules applied in Spain and formalises the rules of presentation of the accounts that companies are obliged to respect, in accordance with the laws set out in the Commercial Code:
- Definition of balance sheet, profit and loss account, annexes.
- Transcription of the accounting rules relating to the conduct of the company.
- Method of presentation of annual accounts and summary documents to be provided.
- Details of the nomenclature to be used for keeping the accounts, in particular for keeping the journal and the general ledger.
Parts that make up an accounting account
Depending on the volume of business your company handles, the number of accounts and sub-accounts to be managed will increase and you will require meticulous organisation for each component that gives rise to an accounting entry.
A T-shaped graphical representation allows you to differentiate the debit or credit transactions of the accounts by means of so-called transaction columns. In order to implement such a graphical exercise, it is necessary to identify some elements.
1. The account holder or account name
This is the name by which the account has been assigned and is the heading of the diagram. Basically, it is the element that will allow the account to be identified.
2. Debit or Debit
Located on the left-hand side of the graphical representation of the account, it corresponds to all the operations that imply an income or increase.
Asset accounts increase the debit and decrease the credit (debit account), so it is the debits that are recorded here.
3. Credit or Credit
Located on the right-hand side of the T-account, it corresponds to all transactions involving an outflow or decrease.
Liability accounts increase to the credit and decrease to the debit (credit account), so it is the credits that are recorded here.
4. Balance
This is nothing more than the difference between the debit and credit, which can be classified in two ways:
- Debit balance, when the sum of the debits in the account is greater than the sum of the credits.
- Credit balance, when the total of credits is greater than the total of debits.
Chart of accounts: optimising your accounting process
Keeping an orderly record of your company's business operations is essential for understanding and controlling the financial status of the business and making good decisions for the future.
Since the volume of information handled at the accounting level can be very high, companies need to implement a chart of accounts or procedures to optimise the accounting process and have control over their financial movements.
Now that you have the basic information you need, you can stop worrying about counting sheep at night so you can sleep, and relax during the day by counting accounts that allow you to produce 😉🐏.
Article translated from Spanish