Explanation

When dealing with one's own business, one must set up a business bank account. Thus when one says "my bank account", they are referring to the business account, not to their personal account. In addition, all accounts referred to in bookkeeping belong to the business, not to other businesses, regardless of their title. For instance, if I have someone I lend money to (called a debtor), and label the account "Debtor A", this does not imply that the account in question belongs to debtor A. This account belongs to me (the business entity), and lists all the transactions between myself and debtor A. The same for every other possible account (there may be many).[vague]


Any account can be classified as one of the five types of accounts. For instance, a business usually has more than one asset account. An essential asset account is of course the bank account. A second one may be a "property" account. The same goes for liability accounts: if I have borrowed money from two sources (called creditors), then I have two accounts to represent this, called 'Creditor A' and 'Creditor B' for example. In this manner I may have 10 or more different accounts. But because they are all classified as one of the five types of accounts, my whole business can be described as my assets, expenses, liabilities, income and capital. Nothing more or less. This is the extent of my business in relation to accounts, regardless of what my business practices (it could be a retail franchise or a furniture shop). With respect to my business, each of the five accounting elements will have a monetary value, and this can be used to assess the financial position of my business at any time (my success, failure, or any other attributes that I might want to know).[vague]


Traditionally, transactions are recorded in two columns of numbers: debits in the left hand column and credits in the right hand column. Keeping the debits and credits in separate columns allows each to be recorded and totalled independently. Accounts within the general ledger are called "T-accounts" because of the T shape the table resembles. Each column of a T-account lists transactions affecting that account. Any particular row of a T-account has no significance.