Three types of Accounts

Types of Accounting

It is the process of recording financial transactions pertaining to a business. The accounting process includes summarizing, analyzing and reporting these transactions to oversight agencies, regulators and tax collection entities. The financial statements used in accounting are a concise summary of financial transactions over an accounting period, summarizing a company's operations, financial position.

All accounts within the organization can be divided into three types.

Personal
Real
Nominal

Personal:

These accounts are generally related to Persons. A personal account is an account for use by an individual for that person's own needs. It is a relative term to differentiate them from those accounts for business or corporate use.

For example – Rajesh and Suresh trading Co., Charitable trusts, XYZ Bank Ltd, C company Ltd, etc.

There can be personal representative accounts as well.

For example – In the case of Salary, when it is payable to employees, it is known how much amount is payable to each of the employee. But collectively it is called as ‘Salary payable A/c’.

Real:

Real accounts are accounts which have been created to account for tangible things. Accounts such as land and building, machinery a/c etc are called real accounts. Although they are not living beings, we still transact with such entities. Records of such transactions are kept in real accounts.

For Example- Furniture purchased by an entity in cash. Debit furniture A/c and credit cash A/c.

Nominal:

Nominal accounts are a special category of accounts. While the other accounts can hold balance and carry it forward, nominal account are automatically reset to zero as soon as the time period is over. Their balance is carried forward to other accounts and the books for that period are closed.

For Example: Profit a/c, depreciation a/c etc.

In this blog we have learnt regarding three different types of accounts such as Personal account, Real account and Nominal account. In next blog we will see Golden Rules of Accounting.

To be continued.

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