Types of Accounts

The Principle of Duality is the basis of financial accounting. According to this theory, every business transaction recorded in accounting records has a two-fold effect. To put it another way, every transaction that is documented in account books must include at least two accounts.

For example, Shaw Pvt. Ltd., purchases 5,000 units of raw material costing Rs 5 lakhs for its business. Shaw Pvt. Ltd. receives raw material in exchange for Rs 5 lakhs in cash in this transaction. To put it another way, raw materials are arriving into the business, while cash worth Rs 5 lakh is leaving.

As a result, there is a transaction that affects the raw material stock, which increases by 5,000 units. At the same time, it has an impact on the company’s cash flow, lowering it by Rs 5 lakh. This is what is known as the ‘Double Entry System’ of accounting, which is commonly used when preparing a business’s account books. As can be seen, the ‘Dual Accounting Concept’ implies that every business transaction has an equal and opposite effect in at least two different accounts.

Account

An account is a detailed description of the transactions carried out by a certain business in relation to a specific person, company, or their representatives or objects. When a business conducts transactions with both consumers and suppliers, for example, both suppliers and customers are referred to as separate accounts. Similarly, businesses may purchase physical goods like land, machinery, plants, buildings, and so on, and each of these tangibles is considered as a separate account, even if they are all tied to things.

Types of Account

Personal Account

• Personal Representative Account
• Personal Artificial Account 
• Personal Natural Account

Real Account 

• Real Intangible Account
• Real Tangible Account

Nominal Account

Personal Account

As previously said, personal accounts are accounts that are associated with an individual, a company, a firm, or a collection of associations, among other things. These people could be natural people, artificial people, or representatives, depending on the situation. Eg. Charitable trusts,  ABC Bank Ltd, X company Ltd., etc. Company Ltd., etc.

Rules for This Account

• The Receiver is debited
• The Giver is credited.

Real Account

Accounts that deal with assets, properties, or possessions are known as real accounts. These properties could be physical or non-physical in nature. This necessitates the development of two different sorts of genuine accounts: Intangible Real Accounts and Tangible Real Account

Rules for this Account

• What comes in is to be debited
• What goes out is to be credited.

Nominal Account

Nominal accounts are those that are associated with any type of revenue or spending, gain or loss. For instance, rent a/c, salary a/c, wage a/c, and so on.

Rules for this Account

• Expenses and losses related to the business must be debited in full.
• All forms of business income and gains, if any, must be credited.

Example

When a salary is paid to employees of a company organization, the salary A/c is debited, as well as when any other expenses are incurred. On the other hand, any discounts, interest, or other benefits obtained by the business entity are recognized as soon as they are received.

There are some more types of Accounts which are as follows:

Cash Account

This type of account keeps a record of all cash, deposit, and withdrawal transactions.

Income Account

This type of account is used to keep track of all types of business income sources.

Expense Account

This type of account keeps track of all of the company’s expenses.

Liabilities

This type of account is used to manage any type of debt or loan that falls within the category of liabilities.

Equities

If the account owner makes any type of investment, such as common stock purchases or retained earnings, the entries will be classified as equities. A business entity’s transactions should be recorded in account books. The business entity should pass journal entries to record these transactions, which will then be placed into ledgers. The journal entries are approved in accordance with the accounting Golden Rules. To apply these rules, you must first determine the type of account, and then you must apply these guidelines.

• Credit is something that goes out, whereas debit is something that comes in.
• The giver is to be credited, and the receiver is to be debited.
• All expenses must be deducted, and all earnings must be credited.

The basis of accounting is thus formed in this manner. The Golden Rules of Accounting are the following rules. These rules are written in the same manner as the letters of the English alphabet. For example, one can only write in English if he is familiar with the English alphabet. Similarly, in accounting, if one does not understand the above-mentioned golden rules, one will be unable to pass journal entries and, as a result, will be unable to account for transactions accurately.

Conclusion

The Principle of Duality is the basis of financial accounting. According to this theory, every business transaction recorded in accounting records has a two-fold effect. To put it another way, every transaction that is documented in account books must include at least two accounts. An account is a detailed description of the transactions carried out by a certain business in relation to a specific person, company, or their representatives or objects. When a business conducts transactions with both consumers and suppliers, for example, both suppliers and customers are referred to as separate accounts. As previously said, personal accounts are accounts that are associated with an individual, a company, a firm, or a collection of associations, among other things.