Absorbed Account - Explained
What is an Absorbed Account?
Written by J. Mance Gordon
Updated at April 18th, 2024
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Table of Contents
What is an Absorbed Account?How are Absorbed Accounts Used? Academics Research on Absorbed AccountWhat is an Absorbed Account?
When an account is merged or absorbed into another similar account, an absorbed account will be realized. An absorbed account is created by combining two related accounts to become one. This is often done when preparing a financial statement for a business or an organization. For instance, a company's ledger account can be merged with other accounts when compiling the financial statement of the company. In most situations, only similar accounts can be merged into one, and the account that is absorbed into the other becomes non-existent at that instance. This means that the accounts merged take the form of a new account, the original accounts are no more (but are kept safe for record purpose).
How are Absorbed Accounts Used?
Absorbed accounts are often used by organizations when there is need to simplify the process of accounting especially when compiling a financial statement. Usually, companies keep different accounts containing different details of the finances of the company. However, in the process of filing a financial statement, some accounts might need to be merged or combined. When one account is absorbed into the other one (usually a similar account), the new changes are reconciled when the absorption account is created.