Account are maintained to determine the hierarchy of Ledger Accounts, which is helpful in determining and presenting meaningful and compliant reports. Using this you can generate reports, which are meaningful as well as compliant with laws.

#How to create new account?

In ProfitBooks some accounts are already made in default and some accounts users would required to make, to make New account:

Go to Accounting > Chart of accounts,
Now to make new account, click on add new account and fill the details :

Account Name: Name of the account.
Account Group : Parent head like Expenses/Income/Assets/Liabilities.
Start date : It is the starting date of financial year by default, user can change it.
Opening balances.



Click on save and it's done.

Now let's check what are the default accounts made in ProfitBooks:

Default Groups

Capital Account
This records the Capital and Reserves of the company. The ledgers that belong to Capital Accounts are Share Capital, Partners' Capital A/c, Proprietor's Capital Account and so on.

Current Assets
Current Assets record the assets that do not belong either to Bank Accounts or to Cash-in-Hand sub-groups.

● Bank Accounts : Current account, savings account, short term deposit accounts and so on.

● Cash-in hand : ProfitBooks automatically creates Cash A/c in this group. You can open more than one cash account, if necessary.

● Deposits (Asset) : Deposits contain Fixed Deposits, Security Deposits or any deposit made by the company (not received by the company, which is a liability).

● Loans & Advances (Asset) : This records all loans given by the company and advances of a non-trading nature (example: advance against salaries) or even for purchase of Fixed Assets. We do not recommend you to open Advances to Suppliers’ account under this Group. For further details, please refer to the section on Common Errors.

● Stock-in-hand : This group contains accounts like Raw Materials, Work-in-Progress and Finished Goods. The balance control depends on whether you have selected Integrated Account-cum-Inventory option while creating the company. (refer to Company creation section for more details) Let us consider these options:

Current Liabilities
Accounts like Outstanding Liabilities, Statutory Liabilities and other minor liabilities can be created directly under this group. Sub-groups under Current Liabilities are Duties and Taxes, Provisions and Sundry Creditors

● Duties and Taxes : Duties and Taxes contain all tax accounts like GST, VAT, Excise, Sales and other trade taxes and the total liability (or asset in case of advances paid) and the break-up of individual items.

● Provisions : Accounts like Provision for Taxation, Provision for Depreciation and so on are recorded under Provisions.

● Sundry Creditors : For trade creditors, refer to common and possible errors in grouping of accounts section.

Investments
Group your investment accounts like Investment in Shares, Bonds, Govt. securities, long term Bank deposit accounts and so on. This allows you to view the total investments made by the company.

Loans (Liability)
Loans that a company has borrowed, typically long-terms loans.

● Secured Loans : Term loans or other long/medium term loans, which are obtained against security of some asset. does not verify the existence of the security. Typical accounts are Debentures, Term Loans, and so on.

● Unsecured Loans : Loans obtained without any security. Example: Loans from Directors/partners or outside parties.

Suspense Account
In modern accounting, many large corporations use a Suspense Ledger to track the money paid or recovered, the nature of which is not yet known. The most common example is money paid for Traveling Advance whose details will be known only upon submission of the Travelling Allowance bill. Some companies may prefer to open such accounts under Suspense Account.
The Suspense Account is a Balance Sheet item. Any expense account even if it has 'suspense' in its name, it should be opened under Revenue group like Indirect Expenses and not under Suspense Account group.

Miscellaneous Expenses (Asset)
This group is typically used for legal disclosure requirements such as Schedule VI of the Indian Companies Act. It should hold incorporation and pre-operative expenses. Companies would write off a permissible portion of the account every year. A balance remains to an extent that cannot be written off in Profit & Loss Account.

Sales Account
You can classify your sales accounts based on Tax slabs or type of sales.
For example,

● Domestic Sales

● Export Sales

Purchase Account
This is similar to sales accounts, except for the type of transactions.

Direct Income [Income Direct]
These are Non-trade income accounts that affect Gross Profit. All trade income accounts fall under Sales Accounts. You may also use this group for accounts like Servicing, Contract Charges that follow sales of equipment.

For a professional services company, you may not use Sales Account group at all. Instead, open accounts like Professional Fees under this group.

Indirect Income
These are miscellaneous non-sale income accounts. Example: Rent Received and Interest Received.

Direct Expenses
These are Manufacturing or direct trading expenses. These accounts determine the Gross Profit of the company.

Indirect Expenses
All administrative, selling or non-direct expenses.

Profit & Loss Account is a reserved primary account. You can use this account to pass adjustment entries through journal vouchers. For example, transfer of profit or loss account to Capital or Reserve account. Sales and Purchase account groups are meant for revenue accounts and are reflected in the Profit & Loss Account.

You can also read about:

How to record bank charges?
How to record Payment against Purchase invoices?
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