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Names of Accounts?

JaffasGirlJaffasGirl Trusted RegularRegistered Posts: 387
Hi,

I may be over complicating this, but it is making me very confused. How do you know what to name an account? or if two things should go into the same account?

I know the obvious ones like, sales, purchases etc. But i was doing a Case Study in my bookkeeping course and it gives you a list of transactions and tells you to enter them into the ledger. One of them was fittings and furnishings for the shop, and another was a cash register. Now i thought that the cash register would come under fittings and furnishings...but apparently its shop equipment, whats the difference? surely they are all things that are used in the shop as part of the daily running and not purchases, and it is a shop 'fitting'

So why the need for the seperate account? - i'm getting really confused with this, when do i open a seperate account and when dont i?

Sorry if this either makes no sense, or is so blindingly obvious!

But your input would be greatly appreciated

Many thanks

Comments

  • CullenCullen Experienced Mentor Registered Posts: 592
    I think this is an excellent question.

    In very broad terms most businesses have similar accounts, Fixed Assets, Bank/Cash, Debtors and Creditors and Expenses. This list of accounts is known as a "Chart of Accounts" and usually follows Assets Liabilities and Expenses.

    However each business is slightly different, and has their chart of accounts tailored to suit them. So you may find a builder's chart of accounts different to a hairdressers. The builder may want to open a separate account for purchasing bricks, glass, tiles, cement etc whilst a hairdresser might want to record small items like scissors and combs separately to shamphoo and hair colours.

    A small business may only have a couple of different fixed asset accounts, eg, premises and vehicles.

    A larger enterprise may have dozens of fixed assets accounts to differentiate all their various assets. This could be: leasehold property, freehold property, commercial vehicles, cars, vans, fixtures and fittings (usually things nailed or screwed down like shelves or counters) shop equipment (more portable assets like tills or other point of sale items) warehouse equipment, factory equipment, factory plant, office eqipment (like photocopiers), computer equipment and I could go on and on.

    In a student problem, look at what accounts you have been told exist and consider each one as it relates to the question you are being asked. In the real world consider how useful it is to separate your fixed asset accounts into different types. It may be pointless to overanalyze items, yet it may be useful to group them into types.

    You can consider your expenses like this too. For example is it useful to separate your gas and electric costs or could you lump them together as "power"? It depends a lot on what information the business owners need.

    Best of luck figuring it all out.
  • Bookworm55Bookworm55 Trusted Regular Registered Posts: 479
    But i was doing a Case Study in my bookkeeping course and it gives you a list of transactions and tells you to enter them into the ledger. One of them was fittings and furnishings for the shop, and another was a cash register. Now i thought that the cash register would come under fittings and furnishings...but apparently its shop equipment, whats the difference? surely they are all things that are used in the shop as part of the daily running and not purchases, and it is a shop 'fitting'

    Did you get marked down for this? I wouldn't have thought it would make much difference as long as it's the same type of account: both Fixtures and Fittings and Equipment are asset accounts. They are certainly not purchases (unless the shop sells cash registers!), as purchases are goods for resale.

    I would be inclined to keep electronics and expensive items in separate accounts though. It depends how much (in £) the amounts are relative to the size of the business. A stapler costing less than £5 is unlikely to be worth counting as an asset, a photocopier costing £5,000 is.

    So I think you need to open a separate account when you think it's worth keeping track of that item separately.
  • ToffeemadblueToffeemadblue Well-Known Registered Posts: 102
    I agree with what's been said, but in general terms equipment such as a register is more portable than carpets, curtain rails etc and that is how in practical terms I decide between the two accounts.
    With regards to being marked down the key is to show you have made a decision and briefly note you are aware that some of these distinctions between the same class of account ( e.g. one expense account or another expense account) are not clear cut.
    Regards
  • blobbyhblobbyh Font Of All Knowledge Registered Posts: 2,415
    From a management accounting point of view, and if the business were bigger, it could come under the control of different managers with different budgets. For example, curtains for the windows (fixtures and fittings) may come under the budget of a facilities manager whose job is to oversee the upkeep and maintenance of the premises, while the purchase of the till could come under the budget of the operations manager who has responsibility for the trading floor and the activities that contribute to it. Accurate G/L coding will often decide where these costs are allocated to and whose budget will suffer the expenditure.

    I know this is a foundation level question but I hope you'll still be able to appreciate the effect of different costs on different parts of an organisation.
  • JaffasGirlJaffasGirl Trusted Regular Registered Posts: 387
    Thanks so much,

    Its certainly helped clear the muddy waters slightly! Especially the thought that fittings and fixtures are things nailed or screwed down and a till as something portable is therefore shop equipment.

    Thanks for all your answers, i just wanted to get this cleared up in my head before the accounts get too complicated!! lol
  • JaffasGirlJaffasGirl Trusted Regular Registered Posts: 387
    Thanks so much,

    Its certainly helped clear the muddy waters slightly! Especially the thought that fittings and fixtures are things nailed or screwed down and a till as something portable is therefore shop equipment.

    Thanks for all your answers, i just wanted to get this cleared up in my head before the accounts get too complicated!! lol
  • Jon_1984Jon_1984 Well-Known Registered Posts: 186
    The other area considered where I work is the depreciation policy. For example racking may be depreciated over 10 years+, whereas electronic equipment is done over 5 years, so we group accordingly.
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