Due to growing need of young people to develop their own start ups and business there is a need to understand how business functions work. And for that you need a business account. So what is a business account?
Read on to find more about it!
A business account is a bank account that’s used only for business transactions rather than personal finances. It can be opened in the name of the business, allowing payments to be made and received using the business’s name.
Business bank accounts operate in a similar manner to personal bank accounts.
However, business account holders can often access services that are unavailable to personal account holders, including: carrying out transactions in foreign currencies, carrying out credit checks on other businesses and suppliers, or for processing salary payments.
Business bank accounts are typically available to sole traders, partnerships, limited companies and other business types.
Types of business bank accounts include business current accounts and business savings accounts and some other.
What is Business Account?
A business needs a system to manage its money. Business accounts are used to track the cash balance, money owed to the business, money owed to creditors, and payroll paid to employees.
The number of accounts a business needs will vary, but business accounts are universal for all businesses.
Business accounts are basically accounts that are needed for the ease of transactions in business. They can be of many types which will be discussed below.
Business Savings Account
A savings account is an excellent option for your business if you have extra cash and are looking to accrue interest on your assets.
This is where companies can store their funds that are not needed for day-to-day operations, earning interest on the amount held within.
The business checking account is the backbone of a business. From this account payroll is deducted, bills are paid and sales are deposited.
This account is also generally the first relationship a business will have with a bank.
Proper maintenance of this account can forge a relationship that could prove beneficial if the business needs funding for expansion or a line of credit.
Businesses that accept credit cards will need a merchant account for payments made via credit cards. Merchant accounts also accept online payments that might be made through a credit card or PayPal.
A merchant account allows the business to accept all forms of payment, an attractive and convenient benefit to customers. Accounts are set up through a bank and a third-party processor.
A business with an online presence will find a merchant account especially helpful.
Accounts payable are a listing of accounts the business owes to its creditors.
Examples of these type of accounts include mortgages, car notes and lines of credit extended to the business by other businesses.
This account is different from typical business expenses because they are long-term or revolving accounts. Payments on these accounts are typically disbursed from the business’ checking account.
Sellers will generally provide buyers with credit to encourage buyers to acquire these assets. They will agree on terms when the buyer will actually pay the seller the cash to settle the accounts payable at a future date.
The conditions of payment may allow payment 30 to 60 days from the date the transaction is enacted.
You can find accounts payable listed on the liability side of the business’s balance sheet.
By the agreed-upon terms of payment, you will need funds in your bank to actually make a payment on these accounts payable
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Receivable accounts are the opposite of payable accounts; these accounts represent money owed to the business by other businesses.
For example, if the business extends credit to its customers, the amounts owed to the business is receivable.
Money is not credited to this account, instead, payments on a receivable are deposited into the business’ checking account. This account, along with the payable account, is an informational account.
Just like when your business buys something on credit, so too do clients buy your products on credit.
The accounts receivable balance reflects the amounts owed to your business by your customers at the end of the accounting period.
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When a business has employees, money from the business checking account is moved into the payroll account.
Using separate accounts to pay employees makes tracking the amounts easier for general accounting and tax purposes.
Not all businesses use a specific payroll account but instead elect to deduct the total amount of payroll from the business account, but from an accounting standpoint, using the payroll account makes things easier.
So these are the kinds of business accounts that you may need for your business. Thank you for reading this article and do add your comments below!
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