The 5 types of account: Real nominal and personal account

 

5 types of account: Real nominal and personal account

The 5 major types of account

Account Types: Real, Nominal, Person

In accounting, accounts are categorized into three main types: real accounts, nominal accounts, and personal accounts.

1.  Real Accounts:

Real accounts are also known as permanent accounts. They represent tangible assets, liabilities, and owner's equity. Real accounts have a continuous balance that carries forward from one accounting period to another. Examples of real accounts include cash, inventory, buildings, and equipment.

2.  Nominal Accounts:

Nominal accounts are also referred to as temporary accounts. They relate to revenues, expenses, gains, and losses. Unlike real accounts, nominal accounts are closed at the end of each accounting period, and their balances are transferred to the owner's equity or retained earnings. Examples of nominal accounts include sales revenue, rent expense, and interest income.

3.  Personal Accounts:

Personal accounts involve individuals or entities with whom a business has financial dealings. Personal accounts can be further divided into two subcategories:

4.  Natural Person Accounts:

These represent accounts of individual people. For example, an account for John Smith would be a natural person account.

5.  Artificial Person Accounts:

These represent accounts of entities like businesses, organizations, or legal entities. For instance, an account for XYZ Corporation would be an artificial person account.

Understanding these three types of accounts is fundamental to the double-entry bookkeeping system and helps maintain accurate financial records for businesses and organizations.