There are 3 main types of accounts in accounting: Real, Personal, and Nominal Accounts. Real accounts are further divided into Intangible real accounts and Tangible real accounts. Personal accounts have three sub-types: Natural, Representative, and Artificial. In this article, we will explore the 3 golden rules of accounting through examples. In this blog will explain “What are the types of accounts in accounting?”. Join a Tally Course In Chennai and start your journey in the field of Tally.
Types of Accounts
- Real Account
- Personal Account
- Nominal Account
Accounting involves recording, categorising, and summarising financial transactions in a meaningful way and interpreting the results. It is considered both a science and an art. Regardless of the size of an entity, having an effective accounting system is crucial for proper management of its business operations. A good grasp of accounting terminology and various types of accounts is essential for accountants. An account is a structured representation of all the transactions related to a specific category. It presents a condensed record of transactions associated with a particular individual or item. For professionals seeking to broaden their skill set, considering a specialised field like the Cyber Security Course in Chennai could offer valuable insights into the realm of digital security and risk management to make sure your account is safe guarded from hackers.
Classification of Accounts in Accounting
- Personal Account
- Real Account
- Tangible Real Account
- Intangible Real Account
- Nominal Account
These types of accounts are associated with individuals who can be natural persons such as Raj, Rajesh, Ramesh, Suresh, etc.
They can also be artificial persons such as partnership firms, companies, corporate bodies, or associations of persons. For instance, entities like Rajesh and Suresh Trading Co., charitable trusts, XYZ Bank Ltd, and C Company Ltd fall under this category.
Additionally, there exist personal representative accounts. For instance, in the case of employee salaries, the total payable amount to each employee is known individually. However, it is collectively referred to as the ‘Salary Payable Account’.
Real accounts are related to assets or properties and are further divided into Tangible real accounts and Intangible real accounts.
Tangible Real Accounts include assets that have a physical presence and can be physically touched, such as Building A/c, Cash A/c, Stationery A/c, and Inventory A/c. For individuals interested in delving into the field of cybersecurity, exploring specialized courses like Ethical Hacking Course in Chennai can provide valuable insights and practical skills to navigate the intricacies of cybersecurity and digital defense strategies.
Intangible Real Accounts, on the other hand, represent assets that lack physical existence but hold measurable monetary value, including items like Goodwill, Patents, Copyright, and Trademarks.
There are specific rules for Real Accounts:
- Debit what comes into the business.
- Credit is what goes out of the business.
For instance, when an entity purchases furniture with cash, the entry would be to debit the Furniture A/c and credit the Cash A/c.
Nominal accounts are associated with income or gains and expenses or losses. Examples include Rent A/c, Commission Received A/c, Salary A/c, Wages A/c, and Conveyance A/c.
The rules for Nominal Accounts are:
- Debit all the expenses and losses of the business.
- Credit the incomes and gains of the business.
For example, when an entity pays salaries to its employees, the Salary A/c is debited as an expense. Conversely, when the entity receives any interest or discounts, these are credited upon receipt. Enrol for the Tally Course In Bangalore and be a full-time Tally in the field of Accounting.
There are several other important accounts in accounting, such as:
This is like a wallet or a piggy bank for a business. It keeps track of all the money that comes in (deposits) and goes out (withdrawals) in the form of cash. It helps a business see how much money it has on hand.
Think of this as a list of where the business gets its money from. It records all the sources of income, like sales, fees, or any other way the business makes money.
This is like a list of everything the business spends money on. It helps track how much money is going out for things like rent, supplies, and salaries.
These are like the debts a business owes. It could be money borrowed from a bank or other people. Liabilities show how much the business owes to others.
This is like a record of the investments made in the business. It includes things like common stocks (which are like shares in the business) and retained earnings (the profits the business keeps after expenses and dividends).
In a nutshell, these accounts help a business keep track of its money and where it’s coming from, where it’s going, and what it owes or owns.
Examples of Types of Accounts
- Goods purchased for cash.
- Cash Sales.
- Sale of fixed assets
- Payment of expenses.
- Credit the cash account and debit the purchase account.
Rule That Applies: – Debit an asset or a rise in expense. Decrease in assets credit.
- Credit the sales account and debit the cash account.
Rule That Applies: – Asset Debit Increase. Give credit reduction of earnings or possessions.
- Credit the bank or cash account and debit the expenses account.
Rule That Applies: -Debit Increase in Cost. Give credit reduction in resources.
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