Classification/Types of accounts in accounting i.e. accounts are classified into two categories personal or impersonal accounts. Impersonal accounts can be further sub-divided into real or nominal accounts.
Lets understand meaning of account in brief.
Accounting means system of classifying, summarizing and recording of financial and business transactions. Further, it is communication of financial and non-financial information.
In brief, accounting is an art of record keeping. The process of accounting begins with by first identifying the events and transactions which are of financial nature. And then recorded in books of accounts. This recording is done in journal and subsidiary books also known as Primary Books.
The primary function of accounting is to provide quantitative information , primarily of financial nature.
Classification of accounts in accounting
1.What is Personal Account in accounting?
Personal accounts are relates to persons, trade receivable or trade payables. For example account of Ram and Co. a credit customer or account of Mahavir and Co. a supplier of goods.
Further, the capital account is the account of proprietors and therefore, it is also personal account but adjustment on account of profit and losses are also made in it .
This account is further classified into three categories:
a) Natural Personal Account : It relates to transactions of human binge like Ram or Riya , Radha etc.
b) Artificial (legal) Personal Account: For business purpose , business entity are treated to have separate entity. They are recognised as person in eyes of law for dealing with other persons. For example Government , Companies (Private or Public) or Cooperative societies etc.
c) Representative Personal Account: These are not in the name of any person or organisation but are represented as personal accounts. For example outstanding liability account, prepaid expenses account, capital account or drawing account.
2. What is Impersonal Account in accounting?
Accounts which are not personal such as cash account, machinery account , rent account, furniture or fixture account etc.These can be further divided as follows:
a) Real Account: Accounts which relates to assets of the firm but not debt. For example accounts regarding land and building, fixed deposit , investments etc. are real account. Cash in hand or cash at bank are also real account.
b) Nominal Account : Accounts which related to expenses, losses , gains or revenue etc. like salary account, interest paid account, commision received account, electricity expenses account ,Repair and maintenance account or depreciation account . The net result of all nominal accounts is reflected as profit or loss which is transferred to capital account . Nominal account are therefore, temporary.
Refer: https://taxandfinanceguide.com/difference-between-bookkeeping-and-accounting/ or
https://taxandfinanceguide.com/fundamental-accounting-assumptions/
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