Account

An account is a running record of amounts owed, received, paid or held, kept for one person, business, asset or purpose. In accounting, it is a single heading in a set of books, such as "cash", "sales" or "rent", where every relevant transaction is written down so that a total can be worked out at any time. In banking, an account is the relationship and record a bank keeps for a customer, showing the money deposited, withdrawn and owed. The word also appears in economics, as in the national accounts and the current account of the balance of payments.

All these uses share the same idea: an account turns a stream of separate events into a balance that can be checked. That idea is old, from clay tallies in ancient Mesopotamia to the paper ledger and the modern core banking system. A bank account is the most familiar kind, but the entry here covers the general concept and points to the more specific types.

Think of a corner shop that lets regular customers buy now and pay at the end of the month. The shopkeeper keeps a page in a notebook for each customer, writing down every loaf of bread taken and every payment made. At any moment, adding up the page shows how much that customer owes. That page is an account.

A bank does the same thing, only the page shows money you have handed over rather than money you owe, and a computer does the adding. A business keeps many pages at once, one for cash, one for sales, one for wages, so that the owner can see where money came from and where it went.

Modern bookkeeping is built on double-entry, a method described in print by the Italian mathematician Luca Pacioli in 1494 and used by Italian merchants before that. Each transaction is recorded in at least two accounts, as a debit in one and a credit in another, so the books always balance. Accounts fall into five broad groups:

• Assets. What the business owns or is owed, such as cash, stock and money due from customers.
• Liabilities. What it owes others, such as supplier bills and loans.
• Equity. The owners' stake, equal to assets minus liabilities.
• Income. Money earned, such as sales and interest received.
• Expenses. Costs incurred, such as wages, rent and interest paid.

The list of all accounts a business uses is its chart of accounts, and the book that holds them is the general ledger. Totals from these accounts feed the financial statements and the cash flow statement. A deliberately false second set of books is a different matter, covered under double accounting.

From a bank's point of view, a customer's account balance is a liability: the bank owes that money to the customer. This is why a balance in the bank is a form of commercial bank money rather than cash in a vault. Common types include:

• Current accounts. A current account, called a checking account in the US, is for everyday payments, with a debit card, transfers and often cheques.
• Savings accounts. A savings account pays interest and limits or discourages frequent withdrawals.
• Term or fixed deposits. Money is locked away for a set period at an agreed rate, as with fixed deposits and certificates of deposit.
• Loan and credit accounts. These record money the customer owes, such as a loan or credit card balance.
• Specialist accounts. Businesses use escrow, trust, nostro and virtual accounts for particular purposes.

The broader family of accounts that take in money is described in deposit account, and the record a customer receives is a bank account statement. Opening one requires identity checks under Know Your Customer (KYC) rules, and payment firms that are not banks can offer a payment account instead.

Governments keep accounts for the whole economy. The UN System of National Accounts sets out a sequence of accounts, from production to income and spending to financial flows, that produce figures such as gross domestic product (GDP); the financial side is shown in flow of funds accounts. The balance of payments divides a country's dealings with the rest of the world into a current account, a capital account and a financial account; the first is described in current account balance, which is unrelated to the bank product of the same name.

The word turns up in other phrases. A unit of account is the measure in which values are recorded, one of the classic functions of money. "On account" means a part payment toward a larger bill. In commerce, "accounts payable" and "accounts receivable" are the totals a firm owes to suppliers and is owed by customers. Online platforms also use "account" for a user login, which is a different thing from a financial record, though the two often meet when a login gives access to a bank or wallet balance.

• IFRS Foundation