Types of Accounts in Accounting System

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Types of Accounts in Accounting System

According to accounting, a functional unit which is recognized by an account number serving an accounting purpose is called an account. Accounts consist of General Ledger (GL) accounts or balance sheet accounts and Subsidiary Ledger (SL) Accounts or revenue/expense accounts. An account is a component of an accounting system used to summarize and classify measurements of business functions. Recording of a business’s similar transactions pertaining to expense, income, liabilities, and assets at an accounting period’s end under proper heads as per rules and principles of accounting in the classified and condensed statement is known as account.

There are mainly five types of accounts in the accounting system. They are as follows:

  1. Assets Account
  2. Liabilities Account
  3. Shareholders’ Equity Account
  4. Revenues or Income Account and
  5. Expenses Account

Each of the types is explained below:

Assets Account

Economically and legally owned resources by the entity are known as assets. As for example, land, building, money, and cars are assets of any entity. Again, assets can be of two types: Current or Short-term Assets and Non-Current or Fixed Assets.

Current Assets include petty cash, cash on hand, work in progress, raw materials, prepayments, finished goods which can be consumed and converted within twelve months from the date of reporting.

Non-Current or Fixed Assets can be categorized into tangible and intangible. Tangible fixed assets include property, land, equipment, building, long term investments which are expected to be consumed and converted in more than twelve months from the date of reporting. Intangible fixed assets include goodwill, investment, patent, and trademarks.

You have a responsibility to list all types of assets which your company owns at the time of starting a business. Each time you buy new products, you should add those to the list. You should inform your accountant about it, so s/he can subtract any expenses which are deemed essential for your business.

Cash account, furniture account, building account, etc. are some examples of assets account.

Related: Types of Financial Statements with Explanation

Liabilities Account

The obligations that the entity owe to other entity or person are known as liabilities. As for example, bank loan, credit purchases, overdraft, taxes payable, and interest payable. Again, liabilities are classified into two categories: Current or Short-term liabilities and Non-Current or Long-term liabilities.

The obligation which is due within a period of one year. As for example, purchase of any item on credit within five months can be recorded as a short-term or current liability. The obligation which is due within a period of more than one 12 months or one year. As for example, a long-term lease which is due within 3 years can be recorded as a long-term or non-current liability.

Loan account, creditors account, bills payable account, etc. are some examples of liabilities account.

Shareholders’ Equity Account

Shareholders’ equities are different from assets and liabilities. The items that are included in equity are share capital, retained earnings, accumulation of other incomes, preferred stock, and common stock. Your company’s current worth will be defined by the shareholders’ equity account. The changes in assets and liabilities over a period will affect the equity’s net value. The equity’s net value can be calculated by subtracting liabilities from assets.

Share capital account, retained earnings account, preferred stock account, common stock account, etc. are examples of shareholders’ equity or equity account.

Revenues or Income Account

Sales of goods and/or services which an entity makes during an accounting period is called revenues. An entity can recognize its revenues or income either on a cash basis or on an accrual basis. You can have knowledge of how much net sales the entity made in the covered period from this account. Revenue or income also indicates interest and dividends which result from marketable securities.

In the income statement, revenues are normally recorded as a summary. You need to check the provided notes with the income statement for details. You can find the different lines of revenues which the entity has generated during the period from the notes. You can also understand the significance, increase and decline of the different lines of revenues.

In double entry accounting system, revenues are increased on credit and decreased in credit.

Sales account, rent received account, interest received account, etc. are examples of revenues or income account.

Expenses Account

Operational costs which occur in the entity for an accounting period are included in the expenses account. Salary expenses, depreciation, utilities, transportation expenses, training expenses, interest expenses, and tax expenses are different types of operating expenses. Expenses also include costs of rendering services and goods sold during the specific period. But the costs of goods sold, and general and administrative expenses are reported differently.

Purchase account, wage account, salary account, etc. are examples of expenses account.

Related: Types of Bank Accounts with the Description

Apart from the above classification, accounts can also be classified based on their nature into three types:

  1. Personal Account
  2. Income-Expenditure or Nominal Account and
  3. Assets Account

Each of the types is explained below:

Personal Account

The accounts pertaining to person and company are known as personal accounts. For instance, Alice Account, Total Online Solution Account, etc.

Income-Expenditure or Nominal Account

The accounts pertaining to expenditure, income, and loss are known as income-expenditure or nominal account. For instance, sales revenue account, purchase account, rent expense account, salary expense account, etc.

Assets Account

It is explained earlier.

Different formats or forms of accounts are now in practice. “T”-format and statement format are popular among them.

Both the formats’ specimens are displayed below:


Dr. Name of Account Cr.


Account Titles

Page No.



Account Titles

Page No.










Statement Format:

Name of Account: …………..                                                                                                 No.: …….


Account Titles

Page No.













Understatement format, some prefer showing the balance in one money column instead of the way shown above. But if you use the above format i.e. dividing in debit balance column and credit balance column, it will be easy for you to identify whether it is a debit balance or a credit balance.


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