In accounting, personal accounts refer to a category of accounts that record transactions related to individuals, entities, or organizations with whom a business or entity has financial dealings. Personal accounts are used to keep track of the balances owed to or by specific people, businesses, or entities. They are an essential part of a double-entry accounting system, where each transaction has equal debits and credits.
Personal accounts can be further categorized into three main types:
Natural Persons: These accounts represent individual people or natural persons. Examples include accounts for customers, suppliers, employees, and the owners of the business (e.g., proprietor’s capital account).
Artificial Persons (Legal Entities): These accounts represent legal entities, organizations, or businesses. Examples include accounts for corporations, partnerships, government agencies, and nonprofit organizations.
Representative Personal Accounts: These accounts represent groups or categories of individuals or entities rather than specific individuals or entities. Examples include accounts for “Sales” (representing all customers collectively) and “Purchase” (representing all suppliers collectively).
Each of these personal accounts keeps a record of transactions that affect the financial relationship between the business and the individual or entity. Transactions involving personal accounts are typically recorded in the general ledger using the double-entry accounting system, ensuring that the accounting equation (Assets = Liabilities + Equity) remains balanced.
For example, when a business sells products to a customer on credit, the following accounting entry is made:
Debit: Accounts Receivable (a personal account representing the customer)
Credit: Sales Revenue (an income or nominal account)
This entry reflects that the customer owes the business money (an asset) while the business recognizes revenue from the sale.
Personal accounts are crucial for maintaining accurate financial records, tracking receivables and payables, and preparing financial statements such as the balance sheet and income statement.