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Types of Accounts

All accounts are either personal or impersonal though it is commonly claimed that there are three types of accounts – personal, real and nominal. Either classification is correct. Impersonal accounts are subdivided between real accounts and nominal accounts.

Personal accounts are for persons who are debtors and creditors.

Real accounts are for assets, liabilities and reserves.

Nominal accounts are for incomes and expenditures.


Personal accounts
Personal accounts are for debtors and creditors who are customers and suppliers respectively. The debtors and creditors can be individuals such as a sole trader or a business organization. Debtors are housed in the sales ledger and the creditors in the purchases ledger. The accounting rule that applies to personal accounts is to debit the receiver and credit the giver. For example, if some cash is paid to a creditor, the creditor’s account is debited (receiver) and the cash account is credited (giver).

Impersonal accounts
Impersonal accounts are those accounts that are not personal accounts. They are not of persons or business entities which are customers or suppliers. There are two types of impersonal accounts – real accounts and nominal accounts – and they are kept in the nominal/general ledger. These accounts are maintained for things owned by the business while others are opened for expenses and losses, and incomes and gains.

Real accounts
Real accounts are for all items of asset, liability and reserve, and the capital accounts that appear on the balance sheet. Assets are possessions of the business such as machinery, motor vehicles, stock., etc. Liabilities are debts due to external parties such as loan. Real accounts also known as permanent accounts, whose closing balances at the end of a financial year are brought forward to the next accounting period as opening balances.

The rule that applies to real or asset accounts is to debit what comes in and credit what goes out. For example, the double entry record for an asset that is bought and paid for by cash is to debit the asset account (asset comes in) and credit cash account (cash goes out). When an asset is sold on credit, the buyer’s account is debited and the asset account is credited.

Nominal accounts
Nominal accounts are for expenses, revenues, gains, and losses that appear on the income statement. Some of these accounts are printing and stationery, sales, discount and interest received, and profit or loss on disposal of an asset. Nominal or temporary accounts are closed at the end of a financial year and the balances transferred to the income statement. Nominal accounts begin the next accounting period with zero opening balances.

The rule applies here is to debit all expenses and losses accounts and credit all the revenues and gains accounts. For example, rent or telephone account is debited when it is paid. When discounts are received from trade creditors, the discounts received account is credited.

Last Updated (Saturday, 25 September 2010 18:44)