In the previous section, you learned about accounting and the different phases of the accounting cycle. Now, let’s delve into the concept of golden rules of accounting. But before we do that, let’s first understand what is meant by an account.
An account is a statement of transactions related to one of the two aspects of a business transaction. An account can either be debited or credited based on the aspect being recorded. Now, let’s move on to the different types of accounts.
Accounts are classified based on the three categories of business transactions: transactions involving individuals or other business entities, transactions involving assets, goods, cash, and transactions involving income, expenses, losses, and gains. Thus, there are three types of accounts maintained for transactions – personal account, real account, and nominal account.
First, let’s take a look at personal accounts. Personal accounts are those that relate to individuals, groups of individuals, firms, and institutions. There are three types of personal accounts:
- Natural Person Account: This type of account is created for natural persons, i.e., individuals. It includes accounts for customers, suppliers, and employees.
- Artificial Person Account: This type of account is created for artificial persons, i.e., organizations. It includes accounts for companies, partnerships, and sole proprietorships.
- Representative Personal Account: This type of account is created for those persons who represent a natural or artificial person, i.e., accounts for agents, executors, and trustees.
In summary, personal accounts are those accounts that deal with transactions related to persons or entities, and there are three types of personal accounts – natural person account, artificial person account, and representative personal account. In the next section, we’ll take a look at real accounts.
Test