Classification of Account

In this post, we will learn about the Classification of Accounts.

Classification of Account

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Types of Account

There are three types of Accounts:

1. Personal Account
2. Real Account
3. Nominal Account

Personal Account

These account types are related to persons. These persons may be natural persons like Raj’s account, Rajesh’s account, Ramesh’s account, Suresh’s account, etc.

These persons can also be artificial persons like partnership firms, companies, bodies corporate, an association of persons, etc.

For example – Rajesh and Suresh Trading Company, Charitable Trusts, XYZ Bank Ltd, C Company Ltd, etc.

List of Important Personal Accounts

• Bank A/c
• Drawing A/C
• Capital A/C
• Outstanding salary A/C
• Outstanding expenses A/C
• Prepaid expenses A/C

Real Account

These are the accounts of all the assets and liabilities of the organization. We do not close these accounts at the end of the accounting year and appear in the Balance Sheet. Thus, we carry forward the balances of these accounts to the next accounting year. Therefore, we can also say that these are permanent accounts.

There are two types of Real Account:

1. Tangible
2. Intangible

Tangible Real Account

A tangible real account is an account in accounting that records transactions related to tangible assets, which are physical assets such as land, buildings, furniture, vehicle, machinery, equipment, and inventory. These assets can be seen, touched, and measured, and they are typically used in the production or sale of goods and services. Transactions related to tangible assets are recorded in the tangible real account as increases or decreases, depending on whether the asset is acquired or sold. The tangible real account is part of the balance sheet and reflects the company’s financial position at a particular point in time.

Intangible Real Account

Intangible real accounts are assets that cannot be seen or touched but have a definite financial value. These assets have no physical substance but can be owned and traded. Examples of intangible real accounts include patents, trademarks, copyrights, goodwill, brand value, and intellectual property. These assets are critical to a company’s long-term success and can significantly affect a company’s financial performance. Intangible assets are recorded in the balance sheet and are subject to periodic impairment testing.

Nominal Account

A nominal account, also known as an income statement account, is a type of account in accounting that records revenues, expenses, gains, and losses for a specific period of time, usually a fiscal year or a quarter. It is called a “nominal” account because the transactions recorded in this account are not related to any physical asset or liability of the business but are nominal in nature. Nominal accounts are temporary accounts that are closed at the end of the accounting period, and their balances are transferred to the owner’s equity or retained earnings account. Examples of nominal accounts include sales, salaries expense, rent expense, interest income, and taxes paid.

For example – Salary A/c, Wages A/c, Dividend A/c, Discount A/c

FAQs on Classification of Account