Study Outcomes of Types of Accounts – Real, Nominal & Personal Accounts Tutorial
After reading the Types of Accounts Explanation, Examples & Summaries, the accounting students could understand and answer to:
=> What are the types of accounts?
=> What are the Personal and Impersonal Accounts?
=> What is the difference between the Real Accounts & => Nominal Accounts?
=> How are real & nominal accounts related with financial statements?
=> What type of account is closed at year end with income & expense summary?
=> Are the Real Accounts Closed at year End?
=> Where is the balance of Real Accounts shown in the financial statements?
Types of Accounts
The Accounts can broadly be classified into:
=> Personal Accounts
=> Impersonal Accounts
The Impersonal Accounts are further divided into:
=> Real Accounts
=> Nominal Accounts
Personal Accounts can be identified very easily as they are simply the accounts of the those parties that a business normally deals with. The are opened in the names of those parties. They are usually the suppliers and customers of the business or to be more technical the creditors and debtors.
The balances at the financial year end are carried forward to the next accounting period. The debtors appear in the asset side of the balance sheet, whereas you find creditors in the liabilities & equity portion.
Remember suppliers account, trade creditors, accounts payable accounts refer to the same thing. Similarly customers account, trade debtors accounts, accounts receivables are the same so please do not get confused about this titling of accounts.
Example of Personal Accounts:
A business has a supplier named ABC Tools, an account will be opened in its name and all the credit purchases and payments with ABC Tools will be entered in its account.
Summary of Personal Accounts:
Personal Accounts can best be described as the debtors and creditors accounts that a business keeps in its accounting books. Also note that Capital account also comes under the category of Personal Accounts.
Impersonal accounts are all accounts other than the personal accounts. They can further be categorized into Real Accounts and Nominal Accounts.
Real Accounts are the Accounts that refers to the possessions of a business. The possessions may be tangible or intangible. The possessions are the Assets of a business.
Examples of Real Accounts include Building, Furnitures & Fixtures, Vehicles, Inventory, Cash etc.
Normally the books of business contains tangible assets that have physical existence. However there are intangible assets as well that can appear in the books of accounts for instance Copyrights, Trademarks, Goodwill, Patents are intangible nature but a business certainly possess them.
The balances of these real accounts are not closed at the financial year end but are carried forward as opening balances of the new financial year. So it can be said that they are not closed at fiscal year end. In the financial statements you find them in the Balance sheet.
Summary of Real Accounts Explanation
They are the accounts that a business possess like cash, inventory, building, goodwill, copyrights.
Real accounts appear in the balance sheet.
Real accounts are not closed at the year fiscal year end.
Real accounts are not income & expenses accounts
Real accounts are also called permanent account for the reason that they are not closed like income & expenses accounts but are carried forward to the next financial year.
The nominal accounts are all those accounts that are in the nature of incomes and expenses of a business. These accounts are closed at the financial year end with the income & expense summary to arrive at the net profit or loss amount.
Examples of Nominal Accounts are Sales Revenue, Services revenue, Cost of Goods Sold, selling and administrative expenses, Gains & Losses accounts.
Summary of Nominal Accounts Explanation
They are of revenues & expenses nature
Nominal Accounts are of temporary accounts that are closed at year end with the income and expense summary or profit & loss account for for this reason they are often referred to be temporary accounts
Nominal accounts start at the year end with zero balance (or no balance) and ends with no balance to carry forward (as all is transferred to income summary).