What is Account? Types of Accounts

What is Account? Types of AccountsRevenue earning and assets and liabilities at the end of accounting period of a business concern cannot be ascertained through mere recording of transactions.

To know all these information transactions are to be recorded separately according to type.

For example;

Purchases of an accounting period in purchase account, total sales in sales account, total salary in salary account etc. are to be recorded separately. Such classified recording of income, expenses, property and assets under different heads is called account.

Hermanson, Edward and Salmonson in their ‘Accounting Principles’;

An account is an element in an accounting system that is used to classify and summaries measurements of business activity

Recording of transactions of similar nature relating to income, expenditure, assets and liabilities at the end of an accounting period of a particular business under appropriate heads as per principles and rules of accounting in condensed and classified statement is called account.

Four Types of Accounts are;

  1. Asset account.
  2. Liability account.
  3. Expenditure account.
  4. Income account.

According to the objective and the principle of accounting equation accounts are four types;

  1. Asset account: The account kept classifying the transactions for which the assets increase or decrease is called asset account. For example, cash account, building account, furniture account etc.
  2. Liability account: The account kept classifying the transactions for which liability increases or decreases is called liability account. For example, creditors account, loan account, bills payable account, capital account etc.
  3. Expenditure account: The account kept under different heads classifying the various expenditures of a business or institution is called expenditure account. For example, salary account, wage account, purchases account etc.
  4. Income account: The accounts, kept under different heads having classified die transactions relating to income properly, are called income account. For example, sale account, interest received account, rent received account etc.

Beside the above classification according to nature accounts are also classified into the following three types;

  1. Personal account: The accounts relating to person and organization are personal accounts. For example, Angel Account, Jamuna and Co. Account etc.
  2. Asset account which is discussed earlier.
  3. Nominal or income-expenditure account: Accounts relating to income, expenditure and losses are nominal or income-expenditure account. For example, purchase expense account, sales revenue account, salary expense account, rent expense account etc.

In practice different formats of accounts are followed. Among them ‘T’ form and statement form are popular. Specimens of both the formats are shown below:

‘T’ Formats:

What is Account? Types of Accounts

Statement Form:

What is Account? Types of Accounts

Under statement form someone prefers to show balance in one money column instead of showing debit balance column and credit balance column as shown in the above format.

But this format is easy to detect whether balance is debit balance or credit balance.