Types of Accounts in Accounting

To simplify the bookkeeping process the accounting system is divided into different types of accounts. In traditional bookkeeping accounts are first grouped into either personal or impersonal accounts, and then impersonal accounts are further divided into real accounts and nominal accounts.

 

Types of Accounts – Personal Accounts

Personal accounts always represent an individual or an organization. Personal accounts are always permanent accounts as they are not closed at the end of each accounting period. At the start of the new accounting period, the closing balance from the prior accounting period is brought forward and becomes the new opening balance on the account.

types of accounts in accounting

Accounts receivable and accounts payable relate to individual customers and suppliers to the business respectively and are therefore examples of personal accounts.

It should be noted that the bank account also represents a balance with a particular organization (XYZ Bank) and is therefore considered to be a personal account. This is in contrast to petty cash for example, which represents physical cash within the business and is classified as a real account (discussed below).

Personal Account Journal Entry Example

The journal below is an example of an entry using a personal account (accounts payable). This journal entry reflects the payment of cash to supplier A.

Types of accounts – Personal account journal entry
Account Debit Credit
Accounts payable (Supplier A) 500
Cash 500
Total 500 500

Types of Accounts – Impersonal Accounts

Impersonal accounts are divided into real and nominal accounts.

Real Accounts

Real accounts include balance sheet accounts such as assets, liabilities and equity and are considered permanent accounts because they are not closed at the end of each accounting period. An example of a permanent account is the long-term assets equipment account.

At the start of the new accounting period, the ending balance from the previous accounting period is brought forward and becomes the new beginning balance on the account.

Real Account Journal Entry Example

The journal below is an example of an entry using real accounts, in this case the equipment account and the cash account. This journal entry reflects the purchase of equipment using cash.

Types of accounts – Real account journal entry
Account Debit Credit
Equipment 1,000
Cash 1,000
Total 1,000 1,000

Nominal Account

Nominal accounts include all income and expenditure accounts such as the rent expense, insurance expense, payroll, and revenue accounts.

Nominal accounts are always temporary accounts as they only last for an accounting period. At the end of the accounting period, the balance is transferred to the retained earnings account using closing journal entries and the account is closed with a zero balance. At the start of a new accounting period, an account will be opened only if there are transactions relating to that account.

It should be noted that the dividend account is also a nominal account.

Nominal Account Journal Entry Example

The journal below is an example of an entry using a nominal account, in this case the insurance expense account. This journal entry reflects the purchase of insurance on credit terms from a supplier.

Types of accounts – Nominal account journal entry
Account Debit Credit
Insurance expense 300
Accounts payable 300
Total 300 300
Last modified May 13th, 2019 by Michael Brown

About the Author

Chartered accountant Michael Brown is the founder and CEO of Double Entry Bookkeeping. He has worked as an accountant and consultant for more than 25 years in all types of industries. He has been the CFO or controller of both small and medium sized companies and has run small businesses of his own. He has been a manager and an auditor with Deloitte, a big 4 accountancy firm, and holds a BSc from Loughborough University.

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