# Categories and accounts

The difference between a financial account and a category, and how both fit the chart of accounts.

Righto uses standard double-entry bookkeeping. In double-entry bookkeeping, each transaction goes into at least two accounts, and the debits equal the credits. You see the same accounts with two everyday names.

## Financial accounts

A **financial account** is a real place where money is: a checking account, a savings account, a credit card, or a cash box. In the chart of accounts, it is an asset (money that you have) or a liability (money that you owe). Its balance continues from year to year, and a statement from the bank can prove it.

## Categories

A **category** says what the money was for or where it came from, for example Service Revenue, Software & Hosting, or Owner Draw. In the chart of accounts, a category is an income, expense, or equity account. Income and expense totals start again at zero each financial year; the result moves to equity.

When you categorize a bank line, Righto writes a balanced entry: one side is the financial account, and the other side is the category.

## Why the difference matters

- A **transfer** goes between two financial accounts. No category changes, so it is not income or an expense. See [Transfers, owner money, and loans](https://rightobooks.com/help/transfers-and-owner-money.md).
- Categories make the [Profit and Loss](https://rightobooks.com/help/reports.md). Financial accounts make most of the Balance Sheet.
- The IRS asks for business expenses by type, for example advertising, insurance, or office expenses on Schedule C. Many people make their expense categories follow those types. The default categories in Righto are examples, not tax classifications. Ask a tax professional how your categories map to your return.

## In Righto

Most screens show only financial accounts and categories. The chart of accounts (an advanced view) shows every account with its type and number. You can add, rename, and archive categories.

## Sources

- [Publication 583, Starting a Business and Keeping Records](https://www.irs.gov/publications/p583) (IRS)
- [Instructions for Schedule C (Form 1040)](https://www.irs.gov/instructions/i1040sc) (IRS)