Types of accounts

Table of Contents

1 Types of accounts in Accounting
2 Real Account
3 Personal Account
4 Nominal Account
5 Balance of Real Account
6 Balance of Personal Account
7 Closing of Nominal Accounts

Last Updated on September 24, 2018

Types of accounts meaning the classification of accounts.For a better financial reporting system classification of accounts is necessary. Similar nature of transactions are brought together in order to create reports. For example traveling expense of an organization is recorded in the journal book on various date.It is difficult to find-out the total of traveling expense in a week or in a month. You have to look at carefully on each date expense and take the total in your calculator to get this result. In order to overcome this difficulty we are creating account for each types of expenses,Income, payments & receipt, payable & receivable. And transfer the similar nature of transactions in the account. Here we are posting all traveling expenses to Traveling expense Account.

Types of accounts in Accounting

For better reporting system Accounts are mainly classified in to three types of accounts in book keeping system. They are

Recommend read : What is a Ledger?

Real Account:- Real accounts are related to asset account which can be touched felt, eg building account, machinery account ,stock,furniture etc
Personal Account:- Personal accounts are related to persons , institutions companies. examples are bank account, creditors a/c etc. Personal accounts are sub-divided into natural persons and artificial persons. Natural persons are individuals or human .Where are artificial persons are the organizations created by law like companies, trusts, firms etc.
Nominal Account:- Nominal accounts are related to income and expenses or losses and gains , examples are rent, commission, salary etc

Types of accounts

What is Dual Aspect

For a better understanding of types of accounts, it is necessary to know the dual aspects in accounting.In every transaction there are two aspects or elements.They are called Debit & Credit .If there is a debit there has to be a corresponding credit, Let,s explain this with an example. Purchased a car for Rs 100000.00 . In This transaction first aspect is “car” by spending money business acquiring a car worth Rs 100000.00 , the second aspect is cash, spending money towards value of car.

Car is coming in to business
Cash going out from the business

Rules For Debit And Credit

The rules of debit and credit is popularly known as golden rules of accounting in India.These rules are the pillars of accounting.All Financial statements are based on these rules.

Real Account

The Rules for Real Account in accounting is

Debit What Comes In

Credit What Goes Out

Lets learn this with a Transaction, Furniture purchased for 2500.00 First of all try to understand which types of accounts are involved in this transaction. Furniture & cash are dealing in this transaction. Both furniture and cash are asset. so both aspects ( debit, credit) are related to real account. Now check what is the Rule for Real account.“Debit what comes in” , Here furniture is coming in the business, So the debit aspect is furniture.Then Real account rules for credit ” Credit what goes out” Cash is going out so credit “cash”.

Particulars	Debit(Dr)	Credit(Cr)
Furniture	2500.00	0.00
Cash	0.00	2500.00

Personal Account

The Rule for Personal account is

Debit The Receiver

Credit The Giver

Now We can move on to the Personal account.Let’s find out the debit & credit for the transaction “Furniture purchased from Mozart Furnitures on credit For 3000.00”.what are the two aspects in this transaction? 1.Furnitures 2. Mozart Furnitures .Then find out the type of accounts involved in this transaction. As furniture is an asset real account is involved & Mozart Furniture is a company or sole trader or partnership firm, it is a personal account.What are the rules for these two account type “Debit What comes in” Furniture is coming in to the business so debit is given to the furniture
now take the rules for personal account “Credit the giver” who is giving the furniture ? SO credit is given to “Mozart furnitures”.

Particulars	Debit(Dr)	Credit(Cr)
Furniture	3000.00	0.00
Mozart Furnitures	0.00	3000.00

Nominal Account

Debit All Expenses or Losses
Credit All Incomes or gains

Finally Nominal Account. On every month end we are getting salary let’s think it from a companies view point. Salary paid to employees 100000.00 .The two accounting aspects are salary & cash
, then account type , salary is expense to the company, so salary comes under nominal account .as per nominal account “Debit all expenses or losses” So Debit Salary & Cash is going out of the Business,Hence Credit Cash which is real account.

Particulars	Debit(Dr)	Credit(Cr)
Salary	100000.00	0.00
cash	0.00	100000.00

Having said the types, It is important to know what the balance of each type of account says.

Balance of Real Account

Real accounts are relate to assets.When assets are received in the business the particular asset accounts are debited.When assets are sold or otherwise disposed of, the particular assets accounts are credited.So if an asset account has a balance it must be a debit balance.It indicates the value of asset in the possession of business.

Balance of Personal Account

The debit balance of a personal account indicates debts owing by the person and credit balance indicates debts owing to the person concerned.For the business the first one is account receivable or asset ,while the second is account payable or liability. The debit balance of all personal accounts on a certain date put together will make sundry debtors and the credit balances of all personal accounts put together will make “Sundry creditors”Sundry debtors are assets and Sundry creditors are liabilities.Where as asset accounts have debit balances liability accounts have credit balances.

Closing of Nominal Accounts

Only accounts relating to assets and liabilities ,that is real account and personal accounts are balanced periodically.Nominal accounts are accounts of expenses and Incomes.They are not balanced;They are closed at the end of the trading period by transferring the amounts to the debit and credit of a Profit and loss account.Before a nominal account is closed it will either show a debit balance ( Expense) or a credit balance ( Income).

Do it your self

Find out the debit and credit aspects of the following transactions

01-07-2016 Purchased land for 105000.00
02-07-2016 Purchased Goods from S.K creation on credit 200000.00
03-07-2016 Stationery purchased for 1000.00
03-07-2016 Goods sold to Indian cotton for Credit 45000.00
05-07-2016 Rent paid to building owner 1500.00
06-07-2016 Cash withdrawn for personal use 5000.00
07-07-2016 Tea expenses incurred for staff 100.00
08-07-2016 Computer purchased from computer solutions 30000.00
15-07-2016 Paid commission 500.00
20-07-2016 Deposit cash in to SBI 15000.00
20-07-2016 cash sales 25000.00
21-07-2016 Cheque Received from Indian cotton 25000.00
22-07-2016 Goods returned by Indian cotton 2500.00
28-07-2016 Cash withdrawn from SBI 10000.00
31-07-2016 Goods returned to S.K creation 5000.00

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	Journal
Sr No	Date	Particulars	Ledger Folio( LF )	Debit Amount	Credit Amount

1	1/7/2016	Land A/c ………Dr		105000.00
		To ; Cash			105000
		(Being purchase land)

2	2/7/2016	Purchase A/c …..Dr		200000
		To; S.K Creation			200000
		(Goods purchased from SK Creation on credit)

3	3/7/2016	Printing & Stationery A/c ….Dr		1000
		To; Cash			1000
		Being stationery purchased as per bill noxxxx


4	3/7/2016	Indian Cottons A/c ……..Dr		45000
		To; sales			45000
		(Being credit sales to Indian Cotton)


5	5/7/2016	Rent A/c …………….Dr		1500
		To;Cash /Ac			1500
		(Rent paid for the month of june)


6	6/7/2016	Drawings A/c ………Dr		5000
		To; Cash			5000
		( cash drawn for personal use)

7	7/7/2016	Staff welfare A/c……. Dr		100
		To; cash			100
		(Tea expense for staff )

8	8/7/2016	Computer A/c ……Dr		30000
		To; Computer solutions			30000
		( being computer purchased from computer solutions for credit)

9	15/07/2016	commision A/c …………..Dr		500
		To; cash			500
		( Paid commission)

10	20/7/2016	SBI A/c …………..Dr		15000
		To; Cash			15000
		( cash deposited in SBI)

11	20/7/2016	Cash ……………………Dr		25000
		To; Sales			25000
		( cash sales)

12	21/7/2016	SBI ( BANK A/C) ….Dr		25000
		To; Indian Cotton			25000
		(being cheque received from indian cotton)

13	22/7/2016	Sales retrun A/c ………Dr		2500
		To; Indian cotton			2500
		( being goods returned by indian cotton)

14	28/07/2016	Cash A/c ……………..Dr		10000
		To; SBI A/c			10000
		( being cash withdrwan for business use)

15	31/7/2016	S.K Creation …………Dr		5000
		To; Purchase return			5000
		( goods returned to sk creation)

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17 comments

venkat

January 29, 2013
8:29 am

first of all you have to write the journal entrys as for business transaction you can divided in to ledger performer if it is case transaction you should enter the cash ledger
muruganandan

July 17, 2013
1:53 pm

Sir

In Accounts Tea Expenses made sum of Rs 200, For cash payment what account head i want to account?
- Saju
  
  March 18, 2014
  1:04 pm
  
  You can create account like ” Staff welfare expense” “Tea Expense” etc
chiranjeev

August 14, 2013
11:51 pm

thanx a tonne… 🙂
it was so simple
Jadhav Nilam

August 27, 2013
2:04 pm

single ledger-create or add any ledger under any parent group.. aftr tht display the list of ledger u have created then u want to changes usinf alter-delete or modification in ledger..
Gani

October 23, 2013
11:36 am

Thank s for good info sir i want more material
adewumi jonathan

April 9, 2014
12:29 am

I NEED MORE KNOWLEDGE
NISAR

December 17, 2015
2:51 pm

i really like the way it was explained, even a kid can understand it.
- Rocky
  
  December 26, 2015
  9:10 am
  
  I did not find it as easy as you said..
  - DACOS
    
    November 6, 2012
    1:54 pm
    
    WHY NOT!!!
  - DACOS
    
    November 6, 2012
    1:56 pm
    
    AWESOME INFORMATION
    !!!
bina sharma

December 21, 2015
3:42 pm

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prosenjit

March 26, 2017
1:00 pm

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- Saju Kunnil
  
  March 28, 2017
  4:19 pm
  
  Thanks a tone!
jesica

December 27, 2017
7:20 pm

awesome!!!
Bushra syeda

September 29, 2018
1:01 am

Thank you very much its very use full thank u
nayab

December 27, 2018
5:27 pm

thanks for good info.

Types of accounts

Types of accounts in Accounting

What is Dual Aspect

Rules For Debit And Credit

Real Account

Personal Account

Nominal Account

Balance of Real Account

Balance of Personal Account

Closing of Nominal Accounts

Do it your self

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