Fundamental 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.
Whenever IT professional starts working on any financial project, they encounters certain accounts and account types that are always seeded in the system, they are able to perform setups for those accounts after going through the manual of the software package, but usually explanation about the need and role of these accounts is not available in the product manual/guide . In this tutorial we will understand what are the minimum accounts types that need to be seeded in any financial system and "why" certain accounts have to be mandatory in nature before the automated accounting process can start.
The intended audience for this tutorial is anybody who has a need to work on any financial IT system. This will be helpful to everyone who wants to understand how to design and implement effective automated accounting systems like ERP's. This tutorial focuses on these concepts from the perspective of an IT professional that is expected to work on any project involving design, build or interface to an automated GL system, rather than a student of accounting.
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.
