According to the double entry system of bookkeeping, there are three types of accounts that help you to maintain an error-free record of your journal entries. Each account type has a rule to identify its debit and credit aspect called as the Golden Rule of Accounting. The accounts are:
- Personal Accounts
- Real Accounts
- Nominal Accounts
Personal Accounts
Ledger accounts that contain transactions related to individuals or other organizations with whom your business has direct transactions are known as personal accounts. Some examples of personal accounts are customers, vendors, salary accounts of employees, drawings and capital accounts of owners, etc.
The golden rule for personal accounts is: debit the receiver and credit the giver.
Example: Payment of salary to employees
In this example, the receiver is an employee and the giver will be the business. Hence, in the journal entry, the Employee’s Salary account will be debited and the Cash / Bank account will be credited.
Real Accounts
The ledger accounts which contain transactions related to the assets or liabilities of the business are called Real accounts. Accounts of both tangible and intangible nature fall under this category of accounts, i.e. Machinery, Buildings, Goodwill, Patent rights, etc. These account balances do not come to zero at the end of the financial year unless there is a sale of the asset or payment made towards a liability or closure or acquisition of the business. These accounts appear in the Balance Sheet and the balances get carried forward to the next financial year.
The golden rule for real accounts is: debit what comes in and credit what goes out.
Example: Payment made for a loan
In this transaction, cash goes out and the loan is settled. Hence, in the journal entry, the Loan account will be debited and the Bank account will be credited.
Nominal Accounts
Transactions related to income, expense, profit and loss are recorded under this category. These components actually do not exist in any physical form but they actually exist. For example, during the purchase and sale of goods, only two components directly get affected i.e money and stock. But, apart from this we may incur profit or loss out of such transactions and we might incur some expenses for these transactions to happen. These secondary components fall under the Nominal Category and the accounts that are in Profit and Loss statement are shown under this category.
The golden rule for nominal accounts is: debit all expenses and losses and credit all income and gains.
Example of Nominal Account: Shipping Charges account and Salary account.
FAQs
There are five main account type categories that all transactions can fall into on a standard COA. These are asset accounts, liability accounts, equity accounts, revenue accounts, and expense accounts. These categories are universal to all businesses.
What are the 7 types of accounting? ›
What are the different types of accounting?
- Tax accounting.
- Financial accounting.
- Management accounting.
- Cost accounting.
- Forensic accounting.
- Governmental accounting.
- International accounting.
- Auditing.
The 5 primary account categories are assets, liabilities, equity, expenses, and income (revenue) Once you understand how debits and credits affect the above accounts, it's easier to determine where to place your sub-accounts.
What is account terminologies? ›
What is accounting terminology? Accounting terminology is the language of accounting. It is used to describe accounting concepts and terms such as income, expenses, assets and liabilities etc. These concepts are all essential elements in understanding how accounting works.
What are the 8 types of accounting? ›
Here are a few areas that accountants can specialize in:
- Financial accounting.
- Tax accounting.
- Management accounting.
- Public accounting.
- Government accounting.
- Forensic accounting.
- Internal auditing.
Accounts are classified in accounting using one of two methods: the current approach or the classic approach. The accounts are classified as asset accounts, liability accounts, capital or owner's equity accounts, withdrawal accounts, revenue/income accounts, and expense accounts, according to the modern approach.
What are the four basic accounting? ›
Typically, you'll need all four: the income statement, the balance sheet, the statement of cash flow, and the statement of owner equity. By preparing these four accounting financial statements, you will be able to see how well your company's finances are doing or find areas that need improvement.
What are the 10 types of accounting cycle? ›
The ten steps are analyzing transactions, journalizing transactions, post transactions, preparing an unadjusted trial balance, preparing adjusting entries, preparing the adjusted trial balance, preparing financial statements, preparing closing entries, posting a closing trial balance, and recording reversing entries.
What are the 4 basic of accounting? ›
Basic accounting concepts used in the business world cover revenues, expenses, assets, and liabilities.
What are the 5 main account types in QuickBooks? ›
Accounts that have an opening balance feed into the Balance Sheet report. These include accounts payable and receivable, asset accounts, liability accounts, equity accounts, and credit card and bank accounts.
According to the traditional approach, accounts are classified into three types: real accounts, nominal accounts, and personal accounts.
What are 6000 accounts in accounting? ›
Expenses
| 6000 | Default Purchase Expense |
|---|
| 6250 | Cash Over and Short |
| 6300 | Charitable Contributions Expense |
| 6350 | Commissions and Fees Expense |
| 6400 | Depreciation Expense |
41 more rowsTerminology is a discipline that systematically studies the "labelling or designating of concepts" particular to one or more subject fields or domains of human activity. It does this through the research and analysis of terms in context for the purpose of documenting and promoting consistent usage.
What is a golden rules of accounts? ›
The three golden rules of accounting are (1) debit all expenses and losses, credit all incomes and gains, (2) debit the receiver, credit the giver, and (3) debit what comes in, credit what goes out.
What is accounting 100 words? ›
The practise of recording a business's financial transactions is known as accounting. As part of the accounting process, these transactions are collated, reviewed, and reported to oversight organisations, regulatory agencies, and tax collection organisations.
What are the 5 major accounts define each and enumerate examples? ›
We have 5 basic categories for accounts:
- Asset: Something a business has or owns.
- Liability: Something we owe to a non-owner.
- Equity: Something we owe to the owners or the value of the investment to the owner.
- Revenue: Value of the goods we have sold or the services we have performed.
- Expenses: Costs of doing business.
The three types of accounting include cost, managerial, and financial accounting. Although 3 methods of accounting are both vital to the healthy functioning of a business, they have different meanings and accomplish different goals. Let's dive into each of each below.
What are the three main types of accounts? ›
3 Different types of accounts in accounting are Real, Personal and Nominal Account. Real account is then classified in two subcategories – Intangible real account, Tangible real account. Also, three different sub-types of Personal account are Natural, Representative and Artificial.
