by Account is nothing but an outline of the transactions undertaken by the business in respect of persons, their representatives and things.
For instance, when a business enters into transactions with suppliers or customers, both suppliers and customers act as separate accounts.
Similarly, business purchasing tangible items like plant, machinery, land, building etc. treats each of the tangibles as individual accounts. Such accounts are related to things.
Thus, whenever a business undertakes transactions, it must identify the accounts involved and then apply the requisite accounting standards and golden accounting rules to record such transactions.
Further, an account is usually represented in a T-Format. Thus, a T Account has two sides to it. The left side is known as the debit side whereas the right side of an account is labeled as the credit side.
Types of Accounts
Accounts are classified into following categories:
- Personal Account
As the name suggests, Personal Accounts are the ones that are related with individuals, companies, firms, group of associations etc. These persons could include natural persons, artificial persons or representative persons.
Type of Personal Accounts
(a) Natural Persons
These accounts relate to natural persons such as Veer’s A/c, Ayan’s A/c, Karen’s A/c etc.
(b) Artificial Accounts
These accounts relate to companies and institutions such as Kapoor Pvt Ltd A/c, Booker’s Club A/c etc. Thus, companies and institutions are the entities that exist in the eyes of law.
(c) Representative Accounts
Accounts that are a representative of some person are called as representative accounts. These include Outstanding Interest A/c, Outstanding Wages A/c, Prepaid Expense A/c etc.
- Real Account
Real Accounts are the ones that are related with properties, assets or possessions. These properties can be both physically existing as well as non physical in nature. Thus, Real Accounts can be of two types: Tangible Real Accounts and Intangible Real accounts.
(a) Tangible Real Accounts
Tangible Real Accounts are accounts which have physical existence. In other words, such assets can be seen, felt or touched. For example Machinery A/c, Vehicle A/c, Building A/c etc.
(b) Intangible Real Accounts
These are the assets or possessions that do not have physical existence but can be measured in terms of money. This means that such assets have some value attached to them.
For example, trademarks, patents, goodwill, copyrights etc.
- Nominal Account
Nominal Accounts relate to income, expenses, losses or gains. These include Wages A/c, Salary A/c, Rent A/c etc.
