Heads of account are categories, or groupings used in accounting to classify transactions and expenses. They are typically used in financial reporting and budgeting to help organize and analyze financial data.
The specific heads of the account used can vary depending on the organization and the type of accounting system being used. However, some common examples of heads of account include:
- Assets – This head of an account includes all the tangible and intangible assets owned by the organization, such as property, plant, and equipment, inventory, and intellectual property.
- Liabilities – This head of accounts includes all the debts and obligations of the organization, such as loans, accounts payable, and accrued expenses.
- Revenue – This head of the account includes all the income earned by the organization, such as sales revenue, interest income, and rental income.
- Expenses – This head of the account includes all the costs incurred by the organization in order to operate, such as salaries and wages, rent and utilities, and office supplies.
- Capital – This head of an account includes all the funds contributed by the owners or shareholders of the organization, such as equity and retained earnings.
Heads of account help to ensure that financial data is recorded consistently and accurately, which is essential for effective financial reporting, budgeting, and decision-making.