What are Personal Accounts?
Personal accounts refer to those financial accounts that belong to individuals, organizations, or entities with whom financial transactions are carried out. The personal accounts track the individuals' assets, liabilities, expenses, and revenue. Thus, individuals can manage their finances, monitor their financial health, and prepare their financial statements using these personal accounts. Typically, personal accounts can be related to natural persons such as Rajesh's account, and Suresh's account, to artificial persons such as partnership firms, corporate bodies, companies, and associations of persons.
Key Takeaways:
- Personal accounts are financial accounts of individuals, organizations, or entities with whom an entity has financial transactions.
- There are three types of personal accounts: natural, representative, and artificial.
- The golden rule of accounting for personal accounts says Debit the receiver and Credit the giver.
Table of Content
Types of Personal Accounts
Personal accounts are ledger accounts of individuals or organizations that have direct financial transactions with your business. They are divided into three main categories: Natural, Artificial and Representative.
1. Natural Personal Account: This type of personal account refers to human beings (individuals or persons) such as customers, dealers, owners or employees of the business. For example: a capital account of an individual or business, creditors account, debtors account, drawings account, salary payable account, accounts receivable and accounts payable, etc.
2. Artificial Personal Account: Apart from individuals or persons, separate legal entities or bodies that have financial transactions are clubbed under the artificial personal account. These accounts belong to those legal entities which are distinct from their members or owners. For example: corporations, government bodies, banks, cooperatives, hospitals, partnerships, associations and trusts, etc.
3. Representative Personal Account: This personal account is a representative of the individuals or organizations, i.e., accounts belongs to groups or categories rather than specific individuals. In this personal account, transactions belong to preceding or succeeding year. For example: an employee's due salary from last year, rent a company paid in advance for the succeeding year can be accounted under this personal account.
Personal Accounts and Golden Rules of Accounting
Personal accounts are required to monitor individual transactions and keep precise records of business transactions with specific parties. They are frequently used in combination with general ledger accounts to simplify recording as well as analyzing financial transactions. The golden rule of accounting is applicable to personal accounts as well.
DEBIT the receiver; CREDIT the giver.
Suppose, a natural or artificial entity makes a donation to a business, it is an cash inflow for the business. Here, the receiver account (natural or artificial entity) must be debited while the business receiving the donation must be credited in the journal entry. Suppose, goods sold to Ramesh is a financial transaction. Here, Ramesh (a natural personal account) is debited and the business who gives the goods to Ramesh have to be credited.
Examples of Personal Accounts
There are multiple personal accounts available. Some of them can be listed as:
1. Customers' Accounts Receivable (Debtors): These accounts track the amounts owed to the business by its customers for goods or services sold on credit.
2. Suppliers' Accounts Payable (Creditors): These accounts track the amounts owed by the business to its suppliers for goods or services purchased on credit.
3. Employees' Accounts: These accounts track the amounts owed to or owed by employees for salaries, wages, bonuses, or other employment-related transactions.
4. Loan Accounts: These accounts track the amounts owed to or owed by the business for loans received or extended, such as bank loans, mortgages, or lines of credit.
5. Capital Accounts: These accounts track the amounts invested by the business owners or shareholders in the business, representing their ownership interests.
6. Partners' Accounts: These accounts track the amounts invested by individual partners in a partnership, as well as their share of profits or losses.
7. Vendors' Accounts Receivable: These accounts track the amounts owed to the business by vendors or suppliers for goods or services sold on credit.
Conclusion
Personal accounts are those financial accounts who represent either individuals, entities or groups of individuals or entities. In journal and ledger accounts, these personal accounts are either credited or debited depending on the golden rules of accounting. A personal account is a general ledger account that relates to individuals. Individuals are natural persons, while companies, firms, associations, and so on are artificial persons. When firm A receives money or credit from another business or individual, it becomes the recipient. In the event of a personal account, the other business or individual who contributes to it takes over as the giver. Creditor accounts are a form of personal account.