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Chapter 2. Accounting 101 > What Is an Account? - Pg. 13

Accounting 101 1. 2. 3. 4. 5. 13 Spot trends by comparing performance over time. See areas of strength and weakness by identifying the costs of producing different types of income. Budget your income and expenses so that you are sure to have enough money to meet your bills when they are due. Plan for the future by forecasting anticipated income and expenses based on past performance. Report on your performance to lenders and tax authorities. What Is an Account? An account is a descriptive title for financial information. On a financial statement that lists all the types of earnings and expenses for a company, or a statement that lists the types of items a company owns and the amounts it owes to others, each individual category is known as an account. Accounts simplify the way financial information is organized to make the information easy to un- derstand. For example, if you tell your banker that your company earned $100,000 last year and spent $75,000, that probably wouldn't be enough to satisfy his curiosity regarding your ability to pay back a loan. By separating your financial transactions into accounts, you can provide a more detailed picture of where the company got its money, how the money was spent, what possessions the company has (such as vehicles or office equipment), and what it owes to lenders. Accounts provide the pieces that fit together to make a financial representation of the whole company. Types of Accounts