Classification of Accounts
The transactions of a business can be classified into the following three categories:
- Transactions relating to persons or individuals
- Transactions relating to property, assets or possessions, and
- Transactions relating to incomes and expenses.
corresponding to the above three categories of transactions, the following three classes of accounts are maintained for recording the transactions of a business:
- Personal accounts,
- Real accounts
- Nominal accounts.
Personal accounts can take the following forms:
(I) Natural persons, accounts ( like Raja's a/c, Haja's a/c Naresh's a/c)
(II) Artificial persons accounts ( Bank account, insurance company a/c, any club a/c and limited company a/c )
(III) Representative personal Accounts
When an accounts represents a certain person or persons, it is called a representative personal account.
(like rent prepaid , interest received in advance , unexpired insurance)
Property or real accounts record dealings in or with property, assets or possessions. The real accounts represent items which are more or less permanent.
(I) Tangible real account: ( like : furniture, plant, machinery, stock and cash)
(2) Intangible real account: ( like: Good will , Trade marks , Patent rights.)
Nominal record a trade's expenses or gains. They are the accounts which are in name only. They are simply used to define the nature of transactions. This will be clear from one example. If in a factory the manager gets salary, the commission agent gets commission, the worker gets wages, the carrier of goods gets carriage, the lender of money gets interest on money, in fact the all get cash ( like rent, interest, discount, carriage,.etc.,)
Rules of double entry / Rules of debit and credit
- Personal account :
Debit the receiver , credit the giver.
2. Real account:
Debit what comes in , credit what goes out.
3. Nominal account:
Debit all losses and expenses , credit all gains and incomes
