Classification of Accounts, Personal, Real & Nominal Accounts

Sun, 05/27/2012 - 02:40 -- Umar Farooq

An accountant records a transaction in his book of accounts, first he must understand which transaction should be debited and which should be credited. To perform such accounting transactions, a clear idea of types of accounts and classification of accounts is very important. 

Classification of Accounts

Following are the types and classification of accounts

  1. Personal accounts
  2. Real Accounts
  3. Nominal Accounts

Personal Accounts

Those accounts which are related to individuals, persons and firms are called personal accounts. Personal accounts can be further divided in to:

  1. Natural Person’s Personal Accounts
  2. Artificial Persons Accounts
  3. Representative Personal Accounts

1. Natural Person’s Personal Accounts

These accounts are related to human beings, physically we can touch them. They can sell or buy product and we can we can also do the same in response. Such accounts are necessary to track to those amounts which are payable or receivable.

For Example:  Baltiwala Accounts, Eraj Enterprises Accounts

2. Artificial Persons Accounts

These are not living or human beings but have a separate entity as per the law. Such business can be operated by Board of Governors, Head of Departments, Principles etc.

For Example: Standard Chartered Bank, Club or Society Accounts

3. Representative Personal Accounts

When an account represents certain person(s) is called representative personal accounts. These are

i. Outstanding Expense Account

Such accounts are created when we are bound to pay expense because we have got some services from other individuals and firms. In the balance sheet the amount will be appeared on the liability side. These accounts are also known as liability accounts.

For Example: Outstanding courier charges, salaries, communication charges.

ii. Advance Expense Accounts

In this case expenses are paid in advance but in reward we have not yet get the services. Here we will create an advance payment account in the name of those persons to whom advances are paid.

For Example: Advance Mobile Charges, Advance Salary etc.

iii. Outstanding Income Account

In simple words the amount which is receivable and the services are already provided.

For Example. Eraj Enterprises provided his services to Singer Group, but Eraj Enterprises have not yet received in income against services provided. EE will open outstanding income account in the name of Singer Group, which will show accounts receivable from Singer Group.

iv. Advance income Account.

Here earnings are received before the services are provided to the party.

For Example: A lawyer received his fee in advance but he has not presented in the court for hearing.

Real Accounts

Real accounts represent the assets both tangible and intangible.

For Example: Bonds purchased property and building, cash in hand etc.

Nominal Accounts

These accounts have no existence in real life but just a name in the books of account. These are also called proprietary because they are related to business proprietor.

For Example: Salary Accounts, Discount Accounts, Rent Accounts etc.