What Are The Three Types of Accounts?

There are three types of accounts within the accounting field: nominal, real, and personal accounts. Real accounts are divided into two categories tangible real account and real intangible account. There are also three types of personal accounts Artificial, Representative, and Natural accounts.

Accounting is summarizing, classifying, and notably recording financial records and understanding the results. Accounting is considered both an art and a science.

For each type of entity, regardless of whether it’s small in size or large in size, it is crucial to have an actual accounting system to accurately manage the business operations. An accountant should have a great comprehension of the phrases used in accounting and the types of accounts. Depending on the size of your business, you may be able to hire a part-time bookkeeping expert to take care of all accounting responsibilities.

An account is simply the structured representation of all the financial transactions associated with a particular head. An account presents the summed-up records of financial transactions associated with a business, thing, or person. An account can also be associated with intangible and tangible things such as furniture, land, or buildings.

Accounts are normally expressed in the form of a statement. They have two sides. The right side is the credit side, while the left side is known as the debit side. The credit side is usually denoted as ‘Cr’ while the debit side is ‘Dr.’

Types of Accounts

Real Accounts

Tangible Real Accounts

They are associated with things that can be felt and touched physically, such as land, machines, buildings, etc.

Intangible Real Accounts

They are associated with things that cannot be felt and touched physically, including patents, goodwill, trademarks, etc.

Personal Accounts

This account is associated with companies, firms, people, etc. A few examples include banks, creditors, prepaid accounts, customer accounts, good suppliers accounts, etc.

Natural Personal Accounts

This kind of personal account is not hard to comprehend compared to the other types of accounts. This account is normally associated with people, for example, Tom’s A/C, Bob’s A/C, Eve’s A/C, etc.

Artificial Personal Accounts

These are artificial personal accounts that have been created by law, for example, institutions, businesses, and corporations. A few specific examples include LLPs, LLCs, schools, clubs, etc.

Representative Personal Accounts

These accounts represent a particular group or a person indirectly or directly. For example, let’s say a company pays its wages in advance to a worker, a prepaid wage account will be opened.

Nominal Accounts

According to the experts at SoFi, this bank account is “associated with losses, expenses, gains, or incomes.” In the dictionary, the word nominal means something that only exists by name, and this meaning is completely true in an accounting sense. This is because nominal accounts don’t exist in the physical realm, although behind each nominal account, there is money involved. Nominal accounts include salaries, wages, rent, etc.

To summarize, real accounts debit the money that goes in and credits the money that goes out, personal accounts credit the giver as debit the receiver, and nominal account credit gain and income and debit loss and expense.