Here we can know how many types of accounts are there and what is the difference between them.
Types of Accounts
Here 9 types of accounts listed below:
The term asset refers to the things or items that have a definite value and are essentially under the control of a business or a company. Assets are generally classified into two types – tangible and intangible assets. Physical objects are usually associated with the term tangible assets and they include many items such as building, machinery, inventories, receivable gifts or cash, expenses that are already paid for known as prepaid expenses and various payments that are committed to other companies or parties.
Items that are not physical and the rights of an individual or a business entity come under the category of intangible assets. Goodwill, trademarks, copyrights, patent rights along with brand recognition are some of the examples of intangible assets. The general practice by a business or a company is the maintenance of individual accounts for every tangible as well as intangible assets to avoid any discrepancies and confusion regarding the quantity of these assets. The asset accounts are maintained systematically for recording any increase or decrease in these accounts which in turn determines the outcome of the business.
The money or the commitment that a business entity owns to the other is termed as a liability. The obligations or the amount borrowed under the name of debt that is payable to either the creditors or other outside individuals consists of liabilities. While setting up a business, the various liabilities that are taken into account include bills payable, accounts payable, wages payable, interest payable, rent payable along with the large amounts of loans that are to be payable are all grouped under this category.
Another item that can constitute a liability is taking any money in advance before actually delivering either the result or the product that is ordered by the company is termed as unearned revenue. Till the time when the work pending is completed or when the given consignment is ready, this revenue will remain unearned money. When a company gets fees from its business customers in advance, till the time the promised target is not achieved, these fees will be considered as a liability.
Capital or Owner’s Equity Accounts
The owner’s claim against that of a company’s assets is termed as the capital. The capital amount is generally equivalent to all the assets combined differentiated from the liabilities that are to be given to the external entities. When there is only a single owner of a business startup, only a single capital account is considered and it is classified as the owner’s capital account. The capital equity account increases when there is an influx of new capital into the business. This account also sees high gains when there is profit in the balance sheet.
When a company incurs losses or when transactions involving withdrawals take place, the balance in the capital account decreases. When the business is owned by a group of individuals in the case of a partnership or a firm, separate capital accounts are maintained and regularly updated for each partner in the firm. In large conglomerates, many individuals own shares in the company who are known as shareholders or stockholders. These individuals all have records of any changes in the money in the form of capital equity accounts.
When a business owner uses the cash or assets for personal use, the transactions are termed as withdrawals. When a single owner of a firm takes money for non-business-related purposes, all the withdrawals are accounted for in accounts known as drawings account. In a higher setup, which consists of a corporate business, stockholders have usually distributed returns periodically and all the transactions occur in a systematic and timely manner. Such distributions are generally kept in recordings known as dividend accounts.
Revenue or Income Accounts
The resulting income or the inflow of cash that is generated form the completion of the promised service or by the delivery of the agreed sale of goods as per the orders is termed as revenue. After removing all the expenditure that has been incurred during the manufacture or the provision of the service, the resultant remaining income is considered as the net profit within the stipulated period.
The term revenue is also used for all the cash inflow that occurs due to the processes other than the major revenue-generating aspects of the business venture. Some other categories of income or revenue include revenue generated from the interest, income that is obtained from the rent along with commission income. All these types of cash inflows are recorded in the form of revenue or income accounts. Usually large corporate houses maintain individual accounts for revenues as well as incomes that are generated by them.
Any work that is delivered to the client for the generation of revenue involves consumption of either services or resources or both. These are termed as expenses. The amount incurred by an individual owning the business or a group of partners incurs various expenses for running Tehri business such as salaries expenses, rent expenses, wages expenses, supplies expenses, telephone expenses, depreciation expenses and a few other miscellaneous expenses that are incurred in the day to day functioning of the company.
The accounts that are opened and are associated with people or organizations as a whole are known as personal accounts. Every individual has a separate account in the organization that records the balance amount that is to be paid and also after the payment has been completed in accounts known as personal accounts.
The details of the tangible and intangible entities that are under the ownership of a business enterprise are categorized as real accounts. Each asset or property is assigned a separate account which is maintained depending on the increase or decrease in the value of that particular asset. Cash account, inventory account, investment account, plant account, building account, goodwill account, patent account, and copyright account are some of the most commonly maintained real accounts.
Nominal accounts consist of the category that includes the income, gains, losses and expenditure that are incurred by a business entity which are then used to prepare a business statement for a defined period.