CLASSIFICATION OF ACCOUNTS
ACCOUNTING
ACCOUNTING
Accounting is the language of business. The affairs and the results of the
business are communicated to others through accounting information, which
has to be systematically recorded and presented.
CLASSIFICATION OF ACCOUNTS
Every business deal with other “Person”, possesses
“Assets”, pay “Expenses” and receive “Income”.
So from the above, we can see every business
has to keep
• An account for each person
• An account for each asset and
• An account for each expense or income.
CLASSIFICATION OF ACCOUNTS
• Accounts in the names of persons are known as
“Personal Accounts”
• Accounts in the names of assets are known as
“Real Accounts”
• Accounts in respect of expenses and incomes
are known as “Nominal Accounts”
CLASSIFICATION OF ACCOUNTS
ACCOUNTS
PERSONAL
ACCOUNTS
IMPERSONAL
ACCOUNTS
REAL
ACCOUNTS
NOMINAL
ACCOUNTS
PERSONAL ACCOUNTS
Accounts in the name of persons are known as
personal accounts.
Eg: Babu A/C,
Babu & Co. A/C,
Outstanding Salaries A/C, etc.
REAL ACCOUNTS
These are accounts of assets or properties. Assets
may be tangible or intangible. Real accounts are
impersonal which are tangible or intangible in
nature.
Eg:- Cash a/c, Building a/c, etc
are Real
Accounts related to things which we can
feel, see and touch.
Goodwill a/c, Patent a/c, etc Real Accounts
which are of intangible in nature.
NOMINAL ACCOUNTS
These accounts are impersonal, but invisible and
intangible. Nominal accounts are related to those
things which we can feel, but can not see and
touch. All “expenses and losses” and all “incomes
and gains” fall in this category.
Eg:- Salaries A/C, Rent A/C, Wages A/C, Interest
Received A/C, Commission Received A/C,
Discount A/C, etc.
DEBIT AND CREDIT
Each accounts have two sides – the left side and
the right side. In accounting, the left side of an
account is called the “Debit Side” and the right
side of an account is called the “Credit Side”. The
entries made on the left side of an account is
called a “Debit Entry” and the entries made on the
right side of an account is called a “Credit Entry”.
RULES FOR DEBIT AND CREDIT
Personal
Account
Debit the Receiver
Credit the Giver
Debit what comes in
Real Accounts
Nominal
Accounts
Credit what goes
out
Debit all Expenses
and Losses
Credit all Incomes
and Gains
Steps for finding the debit and credit
aspects of a particular transaction
• Find out the two accounts involved in the
transaction.
• Check whether it belongs to Personal, Real or
Nominal account.
• Apply the debit and credit rules for the two
accounts.
Exercise
• Purchased a Building for Rs.20,000/-.
• Paid Cash Rs.1,000/- to Satheesh.
• Paid Salary Rs.1000/-.
• Received Commission Rs.250/-.
• Sold goods for Cash Rs.3500/-.
Subsidiary Books
• General Journal
• Special Journals
• Purchase Book
• Sales Book
• Purchase Return Book
• Sales Return Book
• Bills Receivable Book
• Bills Payable Book
• Cash Book
• Petty Cash Book
Journal
Journal is the prime or original book of entry
which all transactions are recorded in the form
entries. Journalising is an act of recording
entering transactions in a Journal in the order
date.
Date
Particulars
LF
Debit
Amount
Credit
Amount
in
of
or
of
Journal Entry
Jan 1, 1981 Prakash Started a business Rs.
15,000/Date
Particulars
1981
Jan 1
Cash a/c
Dr.
To Prakash’s Capital
a/c
(Being cash invetsed to
business)
LF
Debit
Amount
Credit
Amount
15,000
15,000