A house account is an account that a brokerage sets up to look after investments. It is also referred to as a brokerage account and is handled by the firm’s main office by a senior executive. A brokerage is a company that acts as a medium between buyers and sellers. In finance, it involves buying and selling of securities on behalf of the client. In most cases, the brokerage may rarely follow the client’s instructions than advise and guide them on how to invest the money.
A brokerage company may decide its profit to invest in the financial markets. When this happens, it seems foolish, but they will do this through another broker and pay that fees. Instead, the firm will use its staff and technology for research and then buy and sell securities held in their name. These transactions are carried out in a separate account, known as a house account.
In a natural context, a house account may live in any industry with sales representatives and clients. This is enough to understand how important it is to handle the central office rather than any sales representatives. It is one reason why a sales representative doesn’t like a house account because it cannot earn a commission.
It’s also possible that this type of house account settles with a brokerage. There is no difference between sales and management representatives in this setting because the brokerage’s sales representative rarely has any involvement after client attraction. Instead of this, there is a difference between an ordinary account because the junior staff takes the transaction forward at a branch office and in a house account; any transaction is usually carried by senior staff or executive of the company.
Some banks call a house account a Money Market Account. It is set up especially for the homemakers who can use it for household expenditure. The mindset for this is that they may earn interest while still making withdrawals to pay household bills. This system is very useful in those countries where the standard checking account doesn’t pay any attention. By using the term, the house account reflects marketing activity with no legal meaning.
Types of Accounts
Besides, House Accounts, there are five different types of accounts, which you should know, i.e., Assets, Liabilities, Equity, Income, and Expenses.
A) Assets It can be defined as objects, tangible or intangible, that a company owns and has some economic value.
1) Tangible Assets They are the physical assets that a company owns, such as land, building, vehicles, equipment, etc.
2) Intangible Assets They are the assets that represent money or the values of the firm. It includes patents, accounts receivables, and contracts.
Besides this, assets are also grouped according to their liquidity. The examples of it are
1) Current Assets They are entirely sold or consumed and converted into cash in a year or less. The excellent example of existing assets include accounts receivable and prepaid expenses.
2) Fixed Assets These are the tangible assets with a span of life for more than one year. Fixed assets may include machines, buildings, and vehicles. These are items with a higher cost, and they are not expensed but “Written Off.”
B) Liabilities They are debts or the financial obligation for a business which means, the money that companies owe to others. The responsibilities are divided into two parts, i.e., Current Liabilities and Long Term Liabilities.
1) Current Liabilities They are the debts that are paid within 12 months. They consist of monthly operating obligations. The examples of current liabilities are the account payable and customer deposits. The company’s working capital is the fundamental difference between its existing assets and current liabilities. Having short debts and enough working capital is the secret for the company’s long term success.
2) Long-Term Liabilities They are the loans that are used to purchase fixed assets. These loans are paid off in years instead of months.
C) Equity is one of the business owners’ essential things as it’s his financial share. It is that portion of the stock that the owner of the company wholly owns himself. Equity can be in the form of assets such as buildings or cash. Capital is also referred to as net worth.
An excellent example of it is If a person has purchased a vehicle $40,000 with $35,000 as a loan and %5000 in cash. This means he has acquired an asset of $40,000 but has only $5000 as equity.
D) Income It is the money that a business earns from selling the products or services. It may also be earned from interest and dividends on security. Income may also be known as revenue, gross income, and turnover.
Income may be earned from different accounting methods. When a business uses accounting methods’ accrual basis, then revenue is counted as soon as an invoice is entered into the accounting system. When using the accounting method’s cash basis, the tax is not realized until the invoice is paid.
The income account may also be called a temporary report because their balance is reset to zero after starting a new accounting period in a fiscal year.
E) Expenses They are monthly or yearly expenditures through which a company operates. The example of costs are utilities, rent, entertainment, and travel. It is also a temporary account that collects data for one accounting period and then reset to zero at the beginning of the next accounting period. An expense is the most needed thing for a business. Any business may not run for long without any payment.
These are some other accounts besides house accounts. A person should know these accounts better, too, as any business cannot operate without the help of this. Sometimes, even in house accounts, these things are useful. These are basics that a broker can use to know your business and investment knowledge. A man with experience will always get the right investments.