CLAASSIFICATION OF ACCOUNT

Table of Content

• Classification Of Account
• Personal Account
• Debtors
• Creditors
• Impersonal Accounts
• Real Account
• Nominal Account

Classification Of Account

Understanding the classification of account will make it easier to know how to treat each of the financial transactions of the business in the book of accounting. Accounts can be classified into two which are;

1. Personal account
2. Impersonal account

Personal Account

This refers to the account of an individual or organization that that has business dealing with the business and such individual or organization had to be acknowledged in the book of account because of the nature of the transaction. This account includes the debtors and the creditors.

1. Debtors
2. Creditors

1. Debtors:These are credit customers who bought goods on credit from the business. It is because of these customers that businesses keep a sales day book which meant for credit sales. It is regarded as a personal account because an account will be created in the name of the customer to keep records of his or her debt to the business. Debtors account has a debit balances in the ledger i.e. the customer’s account is debited with the amount of his or her debt.
2. Creditors:These are people or organizations that an entity bought goods from on credits. As businesses keep records of their credit customers, so also they keep records of the suppliers that they are indebted to. It is because of these suppliers that businesses keep purchases day book which meant to record credit purchases. Creditors are termed personal account because accounts are going to be opened in the name of each of the suppliers that the business is indebted to. Creditors account has a credit balances in the ledger because, the amount of goods bought on credit by the business is credited to the individual suppliers account.

Impersonal Account

As the name implies are the accounts that are not personal in nature. That is, they are not opened with a person’s or organization’s name like that of debtors and creditors. These accounts are for assets, liabilities, equity, income and expenses. Impersonal accounts can further be classified into two as follow.

1. Real account
2. Nominal account

1. Real account:Real account is for items that are permanent in nature to the business. That is, items that lasted for more an accounting period. Real account is for assets, liabilities and equity. For example, building account, motor van account, plant account and machinery account etc are all examples of real account. Items of the real account are not closed to zero at the end of the financial period and they form the items of the statement of financial position (balance sheet) at the end of the accounting period.
2. Nominal account:This is the account of income, expenses, profits and losses. The accounts are temporary in nature as they are closed at the end of the financial period. For example, sales, purchases, salaries, electricity, dividend received, interest received, among others are examples of nominal account. Nominal account items are treated under income statement which is otherwise known as profit or loss account. That is, the accounts are closed at the end of the financial to the income statement. Any outstanding or advanced from these accounts are transferred to the balance sheet and adjusted in the next accounting period.