Types of Accounts

Understand the three traditional types of accounts and learn their golden rules with simple examples

📘 What are Types of Accounts?

Every business transaction affects one or more accounts. To record transactions correctly, accounts are traditionally classified into three main types:

1. Personal Account
2. Real Account
3. Nominal Account

Each type of account has a specific rule for recording debit and credit transactions.

👤 1. Personal Account

Personal Accounts are accounts relating to persons, firms, companies, institutions and other entities.

Types of Personal Accounts

• Natural Persons: Individuals such as Ram, Sita, Mohan.
• Artificial Persons: Companies, banks, institutions and organisations.
• Representative Persons: Accounts representing a particular person or group of persons, such as Outstanding Salary or Prepaid Insurance.

Golden Rule of Personal Account

Debit the Receiver
Credit the Giver

Example:
Paid ₹5,000 to Ram.

Ram is the receiver, therefore Ram's Account is Debited.

🏠 2. Real Account

Real Accounts relate to assets and properties owned by the business. They generally represent things that have monetary value.

Examples of Real Accounts

• Cash Account
• Furniture Account
• Machinery Account
• Building Account
• Land Account
• Patent Account
• Goodwill Account

Golden Rule of Real Account

Debit what comes in
Credit what goes out

Example:
Purchased furniture for ₹20,000 in cash.

Furniture comes into the business → Debit Furniture Account
Cash goes out of the business → Credit Cash Account

💰 3. Nominal Account

Nominal Accounts relate to expenses, losses, incomes and gains of the business.

Examples of Nominal Accounts

• Salary Account
• Rent Account
• Insurance Account
• Commission Received Account
• Interest Received Account
• Discount Allowed Account
• Discount Received Account

Golden Rule of Nominal Account

Debit all expenses and losses
Credit all incomes and gains

Example:
Paid salary ₹15,000.

Salary is an expense → Debit Salary Account
Cash goes out → Credit Cash Account

📊 Summary of Golden Rules

Type of Account	Golden Rule	Examples
Personal Account	Debit the Receiver Credit the Giver	Ram, Bank, Company, Outstanding Salary
Real Account	Debit what comes in Credit what goes out	Cash, Furniture, Machinery, Building
Nominal Account	Debit all expenses and losses Credit all incomes and gains	Salary, Rent, Interest, Commission

💡 Remember

The classification of accounts helps us decide which account should be debited and which account should be credited when recording a business transaction.

Once these three golden rules are understood, passing Journal Entries becomes much easier.

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