What is a ledger account?

An installation firm receives a purchase invoice for pipework. The invoice is not simply filed away. The amount is booked to the account for purchase costs and, at the same time, to the account of the supplier who still has to be paid. Both are accounts in the general ledger, each with a number and a name.

Accounts exist for what you own, what you owe, what you earn and what you spend. The first two make up the balance sheet, the last two the profit and loss account. With a sensible layout you can see at once where your money comes from and where it goes.

What goes wrong? Too few accounts, and everything lands in one bucket called 'other costs', which leaves you nothing to steer by. Too many accounts, and nobody knows which one is right, so the same cost turns up in three places. Accounts that are never tidied, such as a suspense account full of old amounts, are another familiar source of trouble.

Aim for logical numbering and clear names. Do not let one account serve two purposes. If you want to see costs per department or project, do not create an account for each one; use a cost centre instead. That keeps the layout short and the reporting rich.

Many Dutch companies use a standard coding, the reference chart of accounts. If you follow it, you do not have to invent your own layout, and your accountant and your software have an easier time.