What is an Account? Types of Accounts in Accounting – Explained by Myfinflow

Learn what an account is in accounting, the three main types of accounts—personal, real, and nominal—and how they are used to manage financial records effectively. A beginner-friendly guide by Myfinflow.

What is an Account? Types of Accounts in Accounting – Explained by Myfinflow

Accounting is the language of business. At its core lies the concept of an “Account”, which helps record, classify, and summarize financial transactions. Whether you're managing personal finances or handling corporate records, understanding the types of accounts is key to accurate and transparent accounting.

In this blog by Myfinflow, we’ll walk you through the basics of accounts, the types of accounts in accounting, and answer some common FAQs to help you get started.

What is an Account?

In simple terms, an account is a record that summarizes all transactions related to a particular item or activity. Each account shows the inflow and outflow of money, the current balance, and helps in tracking financial health over time.

For example:

A Cash Account tracks all cash transactions.

A Sales Account records revenue from goods or services sold.

Types of Accounts in Accounting

Accounting is mainly divided into three types of accounts, based on the traditional classification system:

1. Personal Account

These accounts relate to individuals, firms, companies, or institutions.

Examples:

Ram’s A/c

Axis Bank A/c

Myfinflow Pvt Ltd A/c

Golden Rule:
Debit the receiver, Credit the giver

2. Real Account

These accounts deal with assets and properties (both tangible and intangible).

Examples:

Cash A/c

Furniture A/c

Machinery A/c

Goodwill A/c

Golden Rule:
Debit what comes in, Credit what goes out

3. Nominal Account

These are accounts related to expenses, losses, incomes, and gains.

Examples:

Salary A/c

Rent A/c

Interest Income A/c

Golden Rule:
Debit all expenses and losses, Credit all incomes and gains

Why Are Accounts Important?

Help in maintaining accurate financial records

Required for tax filing and audits

Assist in tracking income, expenses, and profits

Build transparency and accountability

Aid in financial planning and decision-making

Frequently Asked Questions (FAQs)

Q1. What is the main purpose of an account in accounting?
To systematically record financial transactions and provide a clear picture of a business’s financial position.

Q2. What is the difference between a personal and real account?
A personal account relates to individuals or companies, while a real account deals with tangible or intangible assets.

Q3. Is a bank account a personal or real account?
A bank account is treated as a personal account, as it represents a relationship with a financial institution.

Q4. What are nominal accounts used for?
Nominal accounts record expenses, incomes, losses, or gains, and are closed at the end of the accounting period.

Q5. How do I know which account to debit or credit?
Use the golden rules for each type of account to determine whether to debit or credit a transaction.

Conclusion

Understanding the types of accounts is the foundation of effective accounting. Whether you’re a student, entrepreneur, or finance professional, knowing how to classify and manage accounts helps in building accurate financial statements and better decision-making.

Stay tuned with Myfinflow for more financial insights, tools, and solutions to make money management easier for you!