Types of Accounts in Accounting
Personal, Real & Nominal — Complete Beginner's Guide
Introduction
Imagine your business is a bustling kitchen. Money is flowing in from customers, flowing out to suppliers, and you're buying new equipment. Now, imagine throwing all your receipts, invoices, and bills into one giant, messy drawer. Need to know how much you spent on coffee beans last month? Good luck finding that single receipt!
This "money record mystery" is exactly what happens without a proper accounting system. The secret to solving this mystery lies in one fundamental concept: classifying every single transaction into the correct type of account.
Think of accounts as neatly labeled jars in your pantry. You have a jar for flour (an asset), a jar for money you owe the delivery guy (a liability), and a jar for the cash from selling cookies (income). By the end of this guide, you'll easily classify Personal, Real, and Nominal accounts like a pro, turning that chaotic drawer into an organized, powerful tool for your business or studies.
What are the Types of Accounts in Accounting?
In accounting, an "account" isn't a bank account. Instead, it's a systematic record of all financial transactions related to a specific person, asset, expense, or income. It's the label on your financial "jar."
To bring order to the financial universe, all business transactions are categorized into three overarching families:
1. Personal Accounts
For dealing with people or organizations
2. Real Accounts
For dealing with assets and properties
3. Nominal Accounts
For dealing with incomes, gains, expenses, and losses
Important Note: This classification isn't arbitrary. It's the bedrock of the double-entry bookkeeping system. This system ensures every debit has a corresponding credit.
Why Understanding Types of Accounts is Important
Why go through all this trouble? Here's why mastering these types of accounts in accounting is a game-changer:
For Students
It's the foundation for your entire accounting syllabus, especially in types of accounts in accounting class 11. Nail this, and complex topics become much easier.
For Small Business Owners
You can't make smart decisions with messy books. Proper classification tells you if you're profitable, what you own, and what you owe.
For ERP & Tech Users
Modern cloud ERP systems rely on this classification to automate reports and power AI-driven insights. You set the rules once, and the system does the rest.
Types of Accounts Explained
Let's open up each of these "financial jars" and see what's inside.
Personal Accounts – The "Who" of Your Business
Definition:
Accounts related to individuals, firms, companies, or organizations.
The Golden Rule:
Debit the receiver, Credit the giver.
Examples:
- Your Customer (who owes you money) is a Debtor (a Personal Account)
- Your Supplier (to whom you owe money) is a Creditor (a Personal Account)
- Your Business Bank Loan from ABC Bank (the bank is the "giver") is a Personal Account
Key Point: When you receive something (like goods or a loan), you debit the personal account. When you give something, you credit it.
Real Accounts – The "What" of Your Business
Definition:
Accounts related to assets, properties, or possessions of a business. They are permanent and are not closed at the end of the year but carried forward.
The Golden Rule:
Debit what comes in, Credit what goes out.
Examples:
- Cash Account (tangible)
- Machinery Account (tangible)
- Building Account (tangible)
- Goodwill Account (intangible)
Key Point: If a new computer (an asset) comes into the business, you debit the Real Account. If you sell an old van (an asset goes out), you credit the Real Account.
Nominal Accounts – The "Why" of Your Business
Definition:
Accounts related to incomes, gains, expenses, and losses. These accounts are the story-tellers. They explain why your owner's equity (the real account) increased or decreased over a period. They are temporary accounts.
The Golden Rule:
Debit all expenses and losses, Credit all incomes and gains.
Examples:
- Rent Expense (expense)
- Salary Expense (expense)
- Sales Revenue (income)
Key Point: At the end of each accounting period, these accounts are closed. Their balances are transferred to the Owner's Capital account (a Real Account). They start the new year with a zero balance.
Golden Rules of Accounting
Now, let's put it all together in a simple table. This is your cheat sheet for the golden rules of accounting.
| Type of Account | Golden Rule | Example Transaction | Debit | Credit |
|---|---|---|---|---|
| Personal | Debit the Receiver Credit the Giver |
Sold goods to Alex on credit | Alex (Receiver) | Sales |
| Real | Debit what comes in Credit what goes out |
Purchased furniture for cash | Furniture (Comes In) | Cash (Goes Out) |
| Nominal | Debit all Expenses/Losses Credit all Incomes/Gains |
Paid electricity bill | Electricity Expense | Cash |
Types of Accounts with Examples & Solutions
Let's practice with some common scenarios.
Transaction 1: You pay $1,000 rent for your shop office.
- Step 1: Identify the accounts involved: Rent Account and Cash Account
- Step 2: Classify them: Rent is an Expense (Nominal Account). Cash is an Asset (Real Account)
- Step 3: Apply the rules:
- Nominal Rule: Debit all expenses. → Debit Rent Account
- Real Rule: Credit what goes out (cash). → Credit Cash Account
Transaction 2: You receive a bank loan of $10,000.
- Step 1: Identify accounts: Bank Account and Loan Account
- Step 2: Classify: Bank is an Asset (Real Account). The bank gave you a loan, so the Loan Account is a Personal Account
- Step 3: Apply the rules:
- Real Rule: Debit what comes in (money into the bank). → Debit Bank Account
- Personal Rule: Credit the giver (the bank). → Credit Loan Account
Transaction 3: You sell products to Sarah for $500 cash.
- Step 1: Identify accounts: Cash Account and Sales Account
- Step 2: Classify: Cash is an Asset (Real Account). Sales is an Income (Nominal Account)
- Step 3: Apply the rules:
- Real Rule: Debit what comes in (cash). → Debit Cash Account
- Nominal Rule: Credit all incomes (sales). → Credit Sales Account
Chart of Accounts Format + Free Downloadable Template
A Chart of Accounts (COA) is a numbered list of all your business's accounts—your master list of "jars." Here's a simplified format:
| Account Code | Account Name | Type |
|---|---|---|
| 1-XXX: Assets (Real Accounts) | ||
| 1010 | Cash in Hand | Real |
| 1020 | Bank Account | Real |
| 1030 | Machinery | Real |
| 2-XXX: Liabilities (Personal Accounts) | ||
| 2010 | Loan from Bank | Personal |
| 2020 | Creditors | Personal |
| 3-XXX: Equity (Real Account) | ||
| 3010 | Owner's Capital | Real |
| 4-XXX: Income (Nominal Accounts) | ||
| 4010 | Sales Revenue | Nominal |
| 5-XXX: Expenses (Nominal Accounts) | ||
| 5010 | Rent Expense | Nominal |
| 5020 | Salary Expense | Nominal |
DOWNLOAD: Your Free Chart of Accounts Template (PDF)
Common Mistakes Students Make in Classifying Accounts
Watch out for these pitfalls!
Mistake 1: Treating "Bank" as a Personal Account
Correction: Your business's own Bank Account is an Asset (Real Account). The bank as an entity you owe money to (e.g., a loan) is a Personal Account.
Mistake 2: Confusing "Drawings" Account
Correction: When the owner takes money or goods for personal use, it's a "Drawings" account. This is a contra-equity account but is treated as a Personal Account (the owner is the receiver).
Mistake 3: Misclassifying Outstanding Expenses
Correction: Outstanding Salary is an expense that is owed. It is a liability, so it's a Personal Account (you owe it to a person/entity), not a Nominal one.
Types of Accounts vs Accounting Equation
This classification perfectly aligns with the fundamental Accounting Equation:
- Real Accounts form the entire Assets side
- Personal Accounts include all Liabilities (creditors, loans) and some parts of equity
- Nominal Accounts (Incomes & Expenses) explain the change in Owner's Equity over a period
Accounting Process Flow
This flowchart shows how journal entries flow through ledger accounts, get summarized in trial balance, and ultimately feed into the Profit & Loss Statement and Balance Sheet.
Types of Accounts in ERP & Automation
In modern business, you don't have to do this classification manually for every transaction. This is where ERP systems shine.
When you set up a modern system, you pre-define the account type for every single account in your Chart of Accounts.
Then, automation takes over:
Sales Invoice
The system automatically Debits the Customer (Personal A/c) and Credits Sales (Nominal A/c)
Payroll
The system automatically Debits Salary Expense (Nominal A/c) and Credits your Bank (Real A/c)
Purchase Order
The system automatically applies the correct golden rules based on account classification
This automation, powered by AI and smart workflows, eliminates human error and frees up immense time for strategic decision-making.
Mini Case Study: 1-Month Business Transactions
Let's run "Aftab's Tech Gadgets" through a month of transactions.
Transaction 1: Investment
Aftab invests $15,000 to start his business.
- Accounts: Cash (Real) ↑, Owner's Capital (Real) ↑
- Entry: Debit Cash, Credit Owner's Capital
Transaction 2: Purchase Asset
He buys a shop shelf for $2,000 cash.
- Accounts: Furniture (Real) ↑, Cash (Real) ↓
- Entry: Debit Furniture, Credit Cash
Transaction 3: Pay Expense
Pays $800 for rent.
- Accounts: Rent Expense (Nominal) ↑, Cash (Real) ↓
- Entry: Debit Rent Expense, Credit Cash
Transaction 4: Credit Sale
Sells headphones to Zara for $300 on credit.
- Accounts: Zara (Personal - Debtor) ↑, Sales Revenue (Nominal) ↑
- Entry: Debit Zara, Credit Sales
Transaction 5: Pay Employee
Pays salary to his assistant, Ben, $1,200.
- Accounts: Salary Expense (Nominal) ↑, Cash (Real) ↓
- Entry: Debit Salary Expense, Credit Cash
Result: By classifying each transaction correctly, Aftab can now generate a perfect Profit & Loss statement and a Balance Sheet.
Frequently Asked Questions (FAQs)
1. How many types of accounts are there in accounting?
There are three main traditional types used in double-entry bookkeeping: Personal, Real, and Nominal.
2. Is bank a personal account?
Your business's own bank account is a Real Account. A loan account from a bank is a Personal Account (the bank is the creditor).
3. What is the golden rule of nominal accounts?
Debit all expenses and losses, Credit all incomes and gains.
4. Is drawings a personal account?
Yes, Drawings is classified as a Personal Account because it represents money or goods taken by the owner (a person) from the business for personal use.
5. Why are real accounts never closed?
Because they represent the permanent, ongoing assets and liabilities of a business. Their balances are carried forward from one accounting period to the next.
6. What type of account is goodwill?
Goodwill is an intangible asset, so it is classified as a Real Account.
7. Where can I find a types of accounts in accounting pdf?
We provide a free downloadable Chart of Accounts template in this handy types of accounts in accounting PDF in the section above. It's a practical application of these concepts.
Conclusion
Remember that messy kitchen drawer from the introduction? You've now mastered the art of labeling every financial "jar." The mystery of where money comes from and where it goes is solved. You understand that personal real nominal accounts are not just academic concepts. They are the logical framework that brings clarity and power to your financial world.
Whether you're a student acing your exams or a small business owner taking control, this knowledge is your foundation. Don't just read—start classifying today! Download your free types of accounts in accounting PDF template now and put your new skills into practice.
Key Takeaways
- The three types of accounts in accounting are Personal, Real, and Nominal
- Personal Accounts deal with people/organizations. Rule: Debit the receiver, Credit the giver
- Real Accounts deal with assets. Rule: Debit what comes in, Credit what goes out
- Nominal Accounts deal with incomes/expenses. Rule: Debit expenses/losses, Credit incomes/gains
- This classification is crucial for accurate financial reporting and is the backbone of modern ERP automation
Call to Action
Explore ERP Accounting Automation Guide
For Students
Download your free PDF template and start practicing with real examples
For Business Owners
Implement proper account classification to gain financial clarity
For ERP Users
Learn how to leverage automation for error-free accounting
About This Guide
This comprehensive guide on types of accounts in accounting was developed by certified accounting professionals with extensive experience in financial reporting, ERP implementation, and accounting education.
Expert Author: Aftab Altaf - Accounting & ERP Specialist with 10+ years in ERP implementation and accounting systems.
Last Updated: 2025
Target Audience: Students (Class 11), Small Business Owners, ERP Users, Accounting Beginners
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