Types or Classification of Accounts/Ledger Accounts

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Types/Classification of Ledger Accounts in both the Approaches of Financial Accounting.

Commonly, there are two Accounting Approaches are used in Financial Accounting for classification of Ledger Accounts.

  1. Traditional/British Approach

  2. Accounting Equation/Modern/American Approach

Traditional and Modern Accounting Approach

According to Traditional/British Accounting Approach Ledger Accounts are classified/divided into three types.

  1. Personal Account

  2. Real Account

  3. Nominal Account

Personal Account

Personal Accounts are also sub-divided into three types.

  • Natural Personal Account

  • Artificial Personal Account

  • Representative Personal Account

Natural Personal Accounts are the Accounts of any Individual person such as Ram A/c, Hari A/c, Geeta A/c, Sita A/c, Joseph A/c, James A/c, Anthony A/c, Angel A/c etc. which has no need to declare as a person by any Court of Law. By nature they are considered as person since birth name given by their parent/guardian. 

Artificial Personal Accounts are the Accounts of group of persons which is formed by some individuals/entities for doing a work/business, like Hindu Undivided Family(HUF), Body of Individuals(BOI), Association of Persons(AOP), Partnership Firms, Limited Liability Partnership(LLP) 

    Public Limited Company such as  

    Bharat Petroleum Corporation Limited, Indian Oil Corporation Limited, Bharat Heavy Electricals            Limited,  Tata Steel Limited, Hindustan Unilever Limited, Reliance Industries Limited etc. 

    Private Limited Company such as  

    Parle Products Private Limited, Mahavir Food Products Private Limited, Green Life Private Limited,     Aamir Khan Productions Private Limited etc.

Representative Personal Accounts are the Accounts, which are mentioned to represent any Natural Personal Account/Artificial Personal Account like Outstanding Expenses A/c(Salary Payable A/c,Wages Payable A/c, Telephone Expenses Payable A/c etc.), Prepaid Expenses A/c, Income Tax Payable A/c, GST Payable A/c, VAT Payable A/c, Interest Payable A/c etc.

Real Account

Real Accounts are the Accounts of Assets and Properties such as 

Land and Building, Plant and Machinery, Furniture & Fixtures, Investment, Cash, Inventories(Stock) etc.

Nominal Account

Nominal Accounts are the Accounts of 

Expenses and Losses such as 

Purchases,Salary Paid,Wages Paid,Travelling Expenses,Printing & Stationeries,Advertisement Expenses,Interest Paid,Discount Allowed,Depreciation etc.

Incomes and Gains such as 

Sales, Service Charges Received, Interest Received, Discount Received, Commission Received etc.

According to Accounting Equation/American/Modern Accounting Approach Ledger Accounts are classified/divided into five types.

  1. Asset Account

  2. Liability Account

  3. Capital Account

  4. Income/Revenue Account

  5. Expense/Expenditure Account

Asset Account 

Asset Accounts are the Accounts of 

Fixed Assets : Land and Building,Furniture and Fixture,Plant and Machinery etc.

Current Assets : Cash,Stock,Sundry Debtors,Loans and Advances etc.

Liability Account

Liability Accounts are the Accounts of

Secured Loans : Bank Loans,Loan against Mortgage/Security Deposit etc

Unsecured Loans : Loan from Bank or other person without any Mortgage/Security Deposit

Other Payable : Sundry Creditors,Expenses Payable/Outstanding Expenses,Provision for Income Tax etc.

Capital Account

Capital Accounts are the Accounts of 

Owner/Proprietor/Partner's equity : Amount of Investment by the Owner/Proprietor/Partner

Capital Account is also treated as Liability Account,because it is a payable amount of Business

Income/Revenue Account

Income/Revenue Accounts are the Accounts of 

Sales : Sale of Goods,Sales of Services.

Other Income : Interest Received,Commission Received,Discount Received etc.

Expense/Expenditure Account

Expenses/Expenditure Accounts are the Accounts of

Purchases : Purchase of Goods,Purchase/Receipt of Services.

Other Expenses : Salary & Wages Paid,Bonus,Carriage &Freight,Travelling Expenses etc.

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