Types of Accounts | A and M Education (2024)

Accounts are classified into 3 categories, they are:

• Personal Account
• Real Account
• Nominal Account

Personal Accounts are related to individuals, firms, companies, etc.

Example: Debtor, Creditor, Banks, Outstanding account, prepaid accounts, accounts of customers, accounts of goods suppliers, capital, drawings, etc.

Received Rs5000 from Mr.Sharma.

In this transaction personal account involved is Mr. Sharma’s account. The personal account of Mr. Sharma gives the benefit i.e cash (so credit the giver of the benefit), therefore Mr.Sharma’s personal account should be credited.

Paid Rs.5000 to Mr.Narayan

In this transaction personal account involved is Mr.Sharma’s account. The personal account of Mr. Narayan receives the benefit i.e., cash (so Debit the receiver of the benefit), therefore Mr. Narayan’s personal account should be debited.

Purchased goods from David on credit Rs.500

Here the personal account involved is Davis’s Account. The personal Account of David gives the benefit of the transaction i.e., goods. Therefore David’s personal account has to be credited.

Sold goods to Hari on credit Rs 500.

In this transaction, the personal account involved is Hari’s account. The personal account of Hari receives the benefit of the transaction, i.e., goods. so, Hari’s personal account has to be debited.

There are three types of personal accounts they are :

1. Natural personal account
2. Artificial personal account
3. Representative personal account

Natural persons are human beings. Therefore, include the accounts belonging to them under this head.

Example: Mr. Sharma’s Account, Mrs. Sita’s Account, capital a/c, drawings a/c, capital a/c, etc come under the category of the natural personal account.

The second among three types of personal accounts is “Artificial” personal accounts. These accounts do not have a physical existence however, they are recognized as persons in business dealings. Most often they arelegal entities created by human beings.

Example: Any Public or Private company A/C, Bank A/C, Club A/C, Insurance company A/C, NGO A/C, Cooperative society A/C, etc. would fall under this category.

This account is different as compared to the other two types of a personal account as it refers to accounts that represent a person or a group.

Example: Outstanding expense A/C, Prepaid expense A/C, Accrued Income A/C, Income received in advance A/C, Unearned commission A/C, etc.

Purchased furniture for Rs.10,000 in cash.

Here Real Account involved is Furniture A/C and cash a/c . Furniture comes into the business (i.e., Debit what comes in), So we have to debit the furniture a/c. Cash goes out of the business (i.e., Credit what goes out), Therefore credit the cash a/c.

Therefore the Journal Entry is;

Furniture a/c Dr 10,000

To Cash a/c 10,000

Sale of Machinery for Rs.10,000 in cash

Here Real Account involved is Machinery a/c and Cash a/c. Machinery goes out of business when it is sold. (i.e., Credit what goes out ), So we have to credit the Machinery a/c. Cash comes into the business when the machinery is sold (i.e., Debit what comes in). Therefore Debit the cash a/c.

Therefore the Journal entry is:

Cash a/c Dr 10,000

To Machinery a/c 10,000

Accounts that are related to expenses, losses, incomes, or gains are called Nominal accounts.

Example– Purchase A/C, Salary A/C, Sales A/C,Commissionreceived A/C,Bad DebtA/C, etc.The final result of all nominal accounts is either profit or loss which is then transferred to thecapitalaccount.

Karan paid wages worth Rs 1,00,000 in cash. So, this transaction involves two accounts: Nominal Account of Wages and Real Account of Cash.

Thus, paying wages worth Rs 1,00,000 in cash means wages are an expense to the business. And Cash is paid towards such an expense. Now Golden Rules pertaining to two accounts would apply in such a case. The Golden Rule of Nominal Account says, “Debit All Expenses and Losses, Credit All Incomes and Gains”. Whereas, Golden Rule of Real Account says, “Debit What Comes In, Credit What Goes Out”.

Thus, Wages A/c will be debited with Rs 1,00,000. Whereas, Cash A/c will be credited with the same amount.

And the Journal entry is :

Wages a/c Dr 1,00,000

To cash a/c 1,00,000