Types of Accounts

Fundamental Accounts:

Business operations may result in financial benefits or losses that arise as a difference of revenue gained from a business activity and expenses, costs and taxes needed to sustain the business activity. Any resultant profit or loss goes to the business's owner. Funds can be invested by owners or outsiders known as equity & liabilities and can be used to acquire assets to perform business activities.  All general ledger accounts can be classified as belonging to either one of these categories – Equity, Liabilities, Assets, Revenue and Expenses. These are the fundamental account types from the perspective of automated accounting systems. Based on this classification, closing balances are never carried forward in automated GL systems for Revenue and Expense Accounts.

In ERP’s each account needs to be classified as belonging to one of these classifications.

General Ledger System Accounts:  Automated Accounting Systems are organized set of manual and computerized accounting methods, procedures, and controls to gather, record, classify, analyze, summarize, interpret, and present accurate and timely financial data from computerized systems. For any accounting system to work it needs to understand the distinction between balance sheet and profit and loss items. Automated systems also provide posting of certain special transactions to specified accounts. For these functions to work, seeded accounts types and accounts are defined in the automated systems. These mandatory pre-defined accounts and account types are referred to as “General Ledger System Accounts”.