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Types of Accounts in Accounting

Posted on
Nov 12, 2021
Types of Accounts in Accounting

Meaning of Accounting

Then there are pre-defined accounting rules and procedures that govern how a transaction should be recorded. It is the difference between debit and credit, income and expenditure, asset and liability. There are then regulations governing whether it is an asset or an expense, and so forth.

Accounting is the process of documenting, analysing, and reporting financial transactions involving a firm. It describes how a business organisation documents, organises and reports these transactions to regulators and other stakeholders. It aids in translating the intangible nature of company reporting to track assets, liabilities, costs, revenue, and equity. Types of accounts are necessary for understanding financial concepts and participating in the corporate world.

Individuals may utilise a type of account in a variety of ways. For example, they may use accounting to manage their budgets, reconcile their monthly credits, and balance their cheque books for future consistency. Alternatively, a corporate entity may employ accounting procedures to assess its revenue and spending items and ascertain its financial status and performance over time. However, the scope and techniques of accounting may vary according to the nature of the company.

Different Types of Accounts: Accounting vs Accountancy

While the phrases accounting and accountancy are frequently used, there is a fine line between the two. Accountancy is the word used to refer to the profession of accountants – those who perform accounting work –. In contrast, accounting is the systematic process of recording all company activities and interpreting all conceptual reports for their intended use by a user.


  • Maintaining records: The system of recording financial transactions also necessitates using a consistent set of accounting principles, methods, and processes. It is concerned with the orderly recording of transactions in suitable books of accounts shortly after they occur.
  • Financial transaction tracking: Numerous transactions are recorded in a company organisation, and each transaction has its accounting system for collection and analysis.
  • Financial Reporting: Many reporting systems require a precise way for a corporate organisation’s financial transactions to be recorded and aggregated in its financial statements. It culminates in creating the Profit and Loss Statement, the Balance Sheet, and the Statement of Cash Flows, as well as the accompanying disclosures.

3 Types of Accounts

Financial accounting

The systematic procedure through which a corporate organisation generates its financial outcomes. The balance sheet, the statement of profit and loss, and the statement of cash flows describe and record the results of an entity’s financial activities.

Cost accounting

For every organisation, determining the cost of a product created is critical, and cost accounting enables firms to make cost-related decisions. The resulting data may be used to determine the price of a product.

Forensic accounting

This branch of accounting is critical since it collects, recovers, and restores financial data as part of the investigative process. In order to broaden its reach, a formal framework establishing a set of forensic accounting benchmarks is being developed.

Accounting Techniques

In general, there are two primary ways for documenting financial transactions in accounting books:

Cash-based system

Financial transactions aren’t recorded in the records until the corresponding cash sum is received or paid. This method does not keep a comprehensive record of financial transactions since credit transactions are not recorded and hence does not present a genuine picture of profit and loss at any moment in time.

Accrual system

Financial transactions are documented in the books of accounts as they occur during the time. This method provides a comprehensive picture of financial transactions made during the time since it records all transactions made during the period, regardless of whether cash is received or paid.

Types of Account in Accounting

We reviewed the five main types of accounts in accounting in this part and provided instances of accounting.


There are many types of property (visible and intangible) that contribute value to a firm. The investment budget includes everything that the firm owns. Over time, investments are depreciated or ‘sold down’, utilising depreciation procedures due to their higher pricing and longer duration.


These are the losses incurred by your business when it is running. An expense or ‘cost’ is a commodity or service acquired by a business to generate income or import items. It might include but is not limited to campaign expenditures, utilities, leases, and labour. Any deductions are tax-deductible, which reduces taxable earnings.


It is, also referred to as earnings, is the amount of money your firm earns. Your income accounts keep track of revenue generated by activities and non-operations. Income accounts are ephemeral or nominal accounts, as their values are reset to zero at the beginning of each new accounting year, which is usually a fiscal year. It is a task that accounting software often handles automatically.


Liabilities are the debts owed by the business and include bank loans or obligations and money owing to other third parties by your firm. Examples include loans, past-due utility bills, bank overdrafts, vehicle loans, mortgages, and other obligations.


Possession of a valued commodity is referred to as equity. It is the remaining interest in the company’s assets after subtracting commitments. The term “equity” refers to common stock, dividends, and deferred earnings. ‘Net Worth’ is another way of saying ‘equity.’ The fundamental accounting equation corresponding to the above rule is Assets = Liabilities + Owners Equity.

Types of Accounts in Accounting: Fundamentals

The separate idea of business entity

We draw a clear separation between the business and the owner when accounting for a commercial organisation. All business transactions are documented from the business’s perspective rather than the owner’s perspective. To the degree that he acquires capital, the proprietor is regarded as a creditor of the organisation.

Concept of dual entry

Each financial transaction requires the recording of two accounting elements. For example, if a business sells items valued at Rs. 6,000, this transaction requires the recording of two accounting aspects. One is a 6,000-rupee stock decrease, while the other is a 6,000-rupee cash receipt. A double-entry system is used to track these two facets of a single transaction. The entire amount deducted will always equal the total amount credited under this rule.

Concept of a continuing concern

Accounting is predicated on the assumption that businesses will continue to function for an extended length of time in the future. In other words, it is presumed that the organisation has neither the purpose nor the need of curtailing its commercial activities. This is the basis upon which a business entity’s financial statements are created and upon which investors agree to participate in the firm.

Concept of congruence

This notion stipulates that income and costs must be documented concurrently with their occurrence. In general, we reconcile revenues and costs within an accounting period. In general, revenue gained over time may be quantified only when it is compared to associated costs. Numerous adjustments are made for prepaid costs, accrued earnings, and so on while producing a period’s financial statements based on this idea.

Final Words

Accounting may be thought of broadly as a business language used to make financial choices. It is the process of assessing a business’s financial performance and condition and communicating the results to its users, who may be internal management. Accounting may be categorised according to its purpose and approach as financial accounting, cost accounting, forensic accounting, and so on. Well-defined ideas and processes frame financial decisions.


How many types of accounts are there?

In accounting, there are three distinct sorts of accounts: real, personal, and nominal. The term “real account” includes two subtypes: intangible and physical real accounts. Additionally, there are three distinct subtypes of personal accounts: natural, representative, and synthetic.

Purchase account is which type of account?

A nominal account is a purchase account. The nominal account is the account in which costs and losses are recorded and income and gains. Any business or organisation incurs expenses when it makes a purchase.

Sales account is which type of account?

The sale account is classified as a Nominal account, whereas the debtor’s account is classified as a Personal account. As a result, the Golden Rule that must be followed is: Debit the receiver. Credit the gain or income. Also known as revenue, sales or net sales are directly reported on the income statement. When financial ratios are calculated using income statement sales data, “sales” refers to net sales rather than gross sales.

A cash account is which type of account?

The term “cash” encompasses more than paper currency and coins. A cash account is an account backed by cash. For instance, when you go to the campus bookstore and write a cheque to cover the cost of your huge intermediate accounting textbook (1,800 pages), your cheque is treated the same as currency.

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