Types of Real Accounts
Real accounts are needed to maintain the financial status of an organization. There are three main types of real accounts:
1. Asset Accounts: The asset real account comprise of those components which are owned by the organization, and which are expected to generate some monetary value to the organization. Generally, there are two types of assets- tangible and intangible assets. The tangible assets includes cash, machinery, land, buildings, accounts receivable, inventory and investments. The intangible assets include goodwill, patents and copyrights.
2. Liability Accounts: All the debts and obligations of an organization comes under the liability accounts. The liabilities depict the responsibility of the organization to repay their creditors or fulfill any financial obligations. here, the liability accounts represents the accounts payables, loans or mortgage or notes payable, bonds payable and accrued expenses.
3. Equity Accounts: The equity account represents the owners’ rights over the assets of their organization. After deducting the liabilities, the residual claims of the assets are included in these equity accounts. It includes common stock, retained earnings, additional paid-in capital and dividends.
The above mentioned real accounts are essential for preparing the balance sheet, which depicts the picture of the financial status of an organization given at a particular period. These accounts are helpful in financial analysis as they predict the financial health and performance of the entity. Further, real accounts are included in closing entries, adjusting entries, and preparation of financial statements.
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