What Are the Three Types of Accounts in Bookkeeping?

In bookkeeping, financial transactions are organized into accounts to track a business’s financial activities. While there are five basic account types (assets, liabilities, equity, revenue, and expenses), they can be grouped into three broader categories based on their role in the accounting system: Real, Personal, and Nominal accounts. Bookkeeping Services in Cleveland. These three types form the foundation of bookkeeping and help categorize transactions in the double-entry system. Below, we explain each type in simple terms.

1. Real Accounts

Real accounts relate to tangible and intangible assets that a business owns or controls, as well as liabilities it owes. These accounts are permanent, meaning their balances carry over from one accounting period to the next.

What They Include:

Assets: Physical items (e.g., cash, inventory, equipment, buildings) and intangible items (e.g., patents, trademarks).

Liabilities: Debts or obligations (e.g., loans, accounts payable, mortgages).

Characteristics:

Represent things with economic value or obligations.

Appear on the balance sheet.

Balances do not reset to zero at the end of the accounting period.

Examples:

Cash in a bank account.

A company vehicle or office furniture.

A loan owed to a bank.

Bookkeeping Rule (Golden Rule): Debit what comes in, credit what goes out.

Purpose: Tracks the business’s resources and obligations over time.

2. Personal Accounts

Personal accounts track transactions related to individuals, businesses, or entities with whom the business interacts. These accounts represent amounts owed to or by people or organizations.

What They Include:

Accounts of individuals (e.g., customers, suppliers).

Accounts of businesses or organizations (e.g., a vendor’s account).

Owner’s equity or capital accounts (e.g., owner’s investment or withdrawals).

Characteristics:

Relate to people or entities the business deals with.

Can appear on the balance sheet (e.g., accounts receivable, accounts payable) or equity section.

Balances may carry over or be settled depending on the transaction.

Examples:

Accounts receivable (money owed by a customer).

Accounts payable (money owed to a supplier).

Owner’s capital account (money invested by the business owner).

Bookkeeping Rule (Golden Rule): Debit the receiver, credit the giver.

Purpose: Monitors financial relationships with external parties or the business owner.

3. Nominal Accounts

Nominal accounts track income, expenses, gains, and losses related to the business’s operations. These accounts are temporary, meaning their balances are reset to zero at the end of each accounting period after being transferred to permanent accounts (e.g., retained earnings).

What They Include:

Revenue: Income from sales, services, or other sources (e.g., sales revenue, interest income).

Expenses: Costs incurred to run the business (e.g., rent, salaries, utilities).

Gains/Losses: One-time or non-operating income or losses (e.g., gain on sale of equipment).

Characteristics:

Relate to the business’s financial performance.

Appear on the income statement.

Balances are closed at the end of the period and transferred to equity.

Examples:

Sales revenue from product sales.

Rent