Operating accounts: Overview, definition, and example
What are operating accounts?
An operating account is a business bank account used for day-to-day transactions, such as paying expenses, receiving revenue, and managing cash flow. It is the primary account a company uses to run its operations, separate from savings or investment accounts.
For example, a small business might use its operating account to pay suppliers, process customer payments, and cover payroll. This account ensures that the company has funds readily available for its regular financial activities.
Why are operating accounts important?
Operating accounts are essential for businesses because they provide a clear way to manage daily financial transactions. Keeping a dedicated operating account helps separate business expenses from personal finances, improving financial organization and simplifying bookkeeping.
For larger companies, having an operating account also helps track cash flow, maintain financial stability, and ensure timely payments to employees and vendors. Banks often offer business-specific operating accounts with additional features like overdraft protection, automated payments, and expense tracking tools.
Understanding operating accounts through an example
Imagine a retail store that sells clothing and accessories. It collects payments from customers through credit cards and cash deposits, which go into its operating account. The store then uses the same account to pay rent, purchase inventory, and cover employee wages. This setup helps the business keep track of incoming and outgoing funds, making financial management easier.
In another example, a consulting firm might have multiple bank accounts—one for operating expenses, another for tax payments, and a third for savings. The firm’s operating account is used for everyday expenses, such as office rent and client-related costs, ensuring a smooth flow of funds for business operations.
An example of an operating accounts clause
Here’s how an operating accounts clause might appear in an agreement:
“The Company shall maintain an operating account for all business-related transactions. All revenue received shall be deposited into this account, and all operating expenses shall be paid from it.”
Conclusion
Operating accounts are essential for businesses to manage daily transactions, track expenses, and maintain financial stability. Keeping a dedicated account for business operations helps improve cash flow management and simplifies accounting.
This article contains general legal information and does not contain legal advice. Cobrief is not a law firm or a substitute for an attorney or law firm. The law is complex and changes often. For legal advice, please ask a lawyer.