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What is a Book of Accounts?

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  • Written By: Sandi Johnson
  • Edited By: C. Wilborn
  • Last Modified Date: 26 November 2016
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A book of accounts contains transaction records for commercial accounts. Double entry accounting systems used by commercial organizations involve numerous ledgers or books, including the general ledger and general journal. Collectively, these ledgers are referred to as books, a shortened term for books of account. A single book of accounts can refer to any one of the numerous books used in the accounting process.

Primarily, the most common use of the term "book of accounts" references the general ledger used in double entry accounting systems. The general ledger contains all accounts used by an organization, along with the current balances of those accounts. Changes to these accounts require entries to note the transactions, creating an ongoing record of the organization's financial history. Other types of ledger and account books include the general journal, cost ledger, and subsidiary ledger, depending on the specific accounting system chosen. Each book fits the definition of book of accounts, although the term is used for these books less often.

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In double entry accounting, the general ledger is one of numerous record-keeping components used in tandem with other books in the commercial accounting system. Information from the general ledger carries over to the financial statements for the organization at the end of the accounting period. Transactions are recorded as they relate to account balances in the general ledger, but these records merely reflect credit or debits to the accounts listed. Detailed information on specific transactions are recorded in via journal entries in the general journal.

Books of account house records showing changes to various commercial accounts used by an organization. These accounts show changes in balances for assets, liabilities, and expenses. For double entry accounting, the general journal records specific transactions involving at least two affected accounts, one with a credit and one with a debit. The new account balance drawn from the general journal information transfers to the general ledger as a summary entry.

An example can help to explain how a book of accounts is used. The purchase of office equipment creates a reduction in cash and an increase in the asset account for office equipment. The specific transaction, affected accounts, and notation about the transaction each warrant an entry on separate lines in the general journal. The increase or decrease to each account then transfers to the primary book of accounts, the general ledger. At the end of the accounting period, the general ledger balances transfer to financial statements such as the balance sheet, income statement, and statement of owner's equity.

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Rundocuri
Post 4

@ocelot60- I never thought of it that way. I guess my relative will learn financial information that will benefit him in many ways, including if he were to decide to open his own business some day. I'll pass this information along to him!

Ocelot60
Post 3

@rundocuri- Yes, your relative will have to learn all about book of accounts in his first few semesters of training to become an accountant. However, you should let him know that not only is learning about book of accounts important to his future career path, it will also help him understand his own finances. So whether he becomes and accountant or not, learning about book of accounts will help him throughout his life.

Talentryto
Post 2

@rundocuri- Yes, book of accounts is a very common term in accounting, and is one that any accounting student should expect to learn very early in his or her course of studies.

I took accounting in college, and I thought it was quite difficult at first. However, once I understood the concept of what the book of accounts was all about, I began to do quite well in the course. Sometimes learning the fundamentals is the best way to begin to master difficult courses, especially those in math and finance.

Rundocuri
Post 1

Is this a term that a first-year accounting student would be expected to learn? I have a relative who wants to be an accountant, and will be starting college courses in the field next year.

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