What does "on Account" Mean?
On account is a term that is used in both accounting circles and in popular culture. The term usually is related to the establishment of some type of credit account in which the creditor receives payments from the debtor. When a payment is received and posted to the creditor’s general ledger, it is said that a payment on account has been recorded. At the same time, the term is sometimes used by consumers to ask merchants to place purchases on an existing customer account for settlement at a later date.
When utilized as an accounting term, on account has to do with the receipt of payment that partially or completely satisfies an outstanding debt. For example, if a local hardware store extends in-house credit to selected customers, those customers may come in during a calendar month and purchase various items, placing the cost of those items on an in-house account provided by the merchant. At the end of the month, an invoice is generated and presented to the customer. In turn, the client tenders payment for the purchases, either settling the entire amount or providing a partial payment that is considered acceptable by both parties.
For consumers, the ability to request that a merchant place purchases on account is usually considered a privilege that must be earned. In the years before the use of charge plates and then later credit cards became common, it was not unusual for local stores to allow local citizens the owners knew well to purchase goods on account, allowing them to pay for them at the end of the month. In some areas of the world, this type of casual credit arrangement continues to be a common practice. While this type of arrangement does not typically come with a credit limit, the merchant does have the ability to deny placing any purchases on account if he or she wishes to do so.
Today, on account is still regarded as a viable term for use in accounting practices and procedures. The use of the term among consumers is less pronounced than it once was, perhaps owing to the fact that the widespread use of credit cards has eclipsed the extension of in-house credit provided by shop owners in many parts of the world. In the broadest sense, use of the term would be appropriate for just about any type of financial arrangement in which payments for purchases are deferred, or even arranged into a series of installment payments with interest applied. This means that even loan arrangements like mortgages and car loans can accurately be described as making purchases on account.
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