Different Types of Accounts

Different Types of Accounts

Business means regular purchasing and selling activities to earn profit. Daily there may be a number of transactions. Remembering all the transactions in mind is difficult. To overcome this problem a trader or businessmen can record all the transactions by chronological order in a book. This is called Book-Keeping. The book which is used to record the transactions is called a Journal or a book of prime entry. All the transactions are recorded a Journal under double entry system. Recording the transactions in a journal is called Journalising. After recording these transactions those are called journal entries.

Double entry system means recording the transactions in both views i.e., in the view of purchaser and in the view of seller. In other words i.e., receiving aspect and giving aspect.

  • Receiving aspect is called Debit &
  • Giving aspect is called Credit.

All the transactions recording in the journal are divided into two accounts. One is personal and second one is impersonal. Impersonal accounts further divided into Real and Nominal accounts.

Types of Accounts
Types of Accounts

Debit Credit Rules for recording transactions

Personal accounts: Personal accounts means accounts related to person.  Person means natural person or artificial person.  Natural person means human beings and Artificial person means person created by law.

For example: companies,trustees etc.

A separate account is maintained for each person.

Eg: Seetha account,  Suseela  account,  Kiran account etc.,

Rules for personal account:   

  • “Debit the Receiver”
  • “Credit the giver”

Eg: A paid cash to B. Here A is paying cash to B.  B is received and A is given. So Journal entry is:

  1. In the Books of A:

B account Dr xxx

To cash account xxx

(Being Cash paid to B)

2. In the Books of B:

Cash account Dr xxx

To A account xxx

(Being Cash paid to A)

Impersonal accounts: Accounts not dealing with person is called impersonal accounts.They are further divided into Real and Nominal accounts.

Real accounts:  Real accounts deal with asset. A separate account is maintained for each asset.

For Eg: Machinery a/c, Building a/c, stock a/c, Cash a/c etc.,

Rules of Asset/Real A/c:   

  • “Debit what comes in”
  • “Credit what goes out”

For eg:- Furniture purchased for cash Rs.10,000/- Here furniture is coming into the business and cash is going out

Nominal accounts: Nominal accounts are related to expenses and incomes of business.  A separate account is maintained for every expenditure and income

 For eg: Salaries a/c, Rental a/c, Commission received a/c, Discount received a/c etc.,

Rules of Nominal Account:       

  • “Debit all Expenses & Losses”
  • “Credit all Incomes & Gains”

For eg: Paid salaries Rs.10000/-. Here salaries are expenditure.Hence debit salary account. So journal entries is

Salaries account DR. 10000/-

To cash account 10000/-

(Being salaries paid)

Eg:- Discount received is 1000 Here discount received is income.  Hence credit the discount received a/c.  So journal entry is cash a/c dr 1000/-  to discount received a/c 1000/- (being discount received)

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