Blog 3: Types of Accounts in Accounting: Real, Personal & Nominal Explained

 

Accounting isn’t just about crunching numbers—it’s about knowing where your money goes and why. And that starts with understanding the three core account types: Real, Personal, and Nominal. These aren't just textbook terms—they’re the foundation of every smart financial decision you’ll make. This classification helps us apply the right rules for debit and credit, and ensures accuracy in bookkeeping.

Let’s break it down in the simplest way possible.

📘 Why Understanding Account Types Matters

Not every transaction is the same. Some involve people, some involve things, and some are just records of income or expenses.

By classifying accounts into Real, Personal, or Nominal, you:

* Use the correct debit/credit rule
* Avoid confusion when recording entries
* Make your accounting system clean and logical

1️⃣ Real Accounts

These are accounts related to assets—physical or non-physical things a business owns.

✅ Examples:

* Cash
* Bank
* Furniture
* Buildings
* Equipment
* Trademarks (intangible asset)

📌 Rule:

Debit what comes in, Credit what goes out

🧾 Example:

You buy a chair for ₹2,000 in cash.

* Debit: Furniture (asset came in)
* Credit: Cash (asset went out)

2️⃣ Personal Accounts

These accounts relate to people or organizations. They may be individuals, companies, banks, or any party you do business with.

✅ Examples:

* Ram’s A/c
* Axis Bank A/c
* Creditors A/c
* Debtors A/c
* Capital A/c (also personal)

📌 Rule:

Debit the receiver, Credit the giver

🧾 Example:

You receive ₹5,000 from a client named Anjali.

* Debit: Cash (asset received)
* Credit: Anjali’s A/c (she gave the money)

3️⃣ Nominal Accounts

These represent expenses, losses, incomes, and gains. They’re temporary accounts that are closed at the end of the accounting period.

✅ Examples:

* Rent
* Salary
* Commission Received
* Interest Income
* Electricity Bill
* Profit & Loss A/c

📌 Rule:

Debit all expenses and losses, Credit all incomes and gains

🧾 Example:

You pay ₹8,000 as office rent.

* Debit: Rent (expense)
* Credit: Cash or Bank (money paid)

🧠 How to Remember These Rules Easily

Account Type	Rule for Debit	Rule for Credit
Real	What comes in	What goes out
Personal	The receiver	The giver
Nominal	All expenses and losses	All incomes and gains

💡 Tip: Once you identify the type of account, the debit and credit logic becomes easy to apply.

🧾 Recap with a Real-Life Transaction

Transaction: You paid ₹1,000 salary to an employee via the bank.

Account	Type	Entry
Salary	Nominal	Debit
Bank	Real	Credit

Simple, logical, and clear.

🧮 Final Thought

Accounting isn’t just about numbers—it’s about understanding why and where money moves. Learning to identify account types helps you:

* Record entries correctly
* Understand business finances better
* Prepare for future tools like Tally or accounting software

“The more clearly you classify, the stronger your records become.”

📘 Coming Up Next 

Series 4: Journal Entries in Accounting – Format, Rules & Examples

We’ll take everything you’ve learned and show you how to write journal entries with real-world examples—step by step.

Stay with Meghna's Exploration as we continue simplifying accounting for beginners and professionals alike.