Classification of Accounts:
- Meaning of Account:
An account is a summarized record of transactions relating to a particular person, asset, liability,
particular head of expense or income recorded at one place. In day to day business activity large
number of business transactions takes place. It affects the several accounts. At the end of certain
period of time, it is necessary for the businessman to balance the accounts to find out the information.
Like total capital, total liabilities and assets, total incomes and expenses etc. of the business.
Definition of Account:
“An account is summarized record of transactions affecting one person, one kind of property or one
class of gain or loss.” – G.R.Batliboi
Classification of
Accounts
Personal Impersonal
Accounts Accounts
Natural Artificial Representative Real Nominal
Personal Personal Personal Account Accounts
Account Account Account
1. Sunita's A/c 1. Pune Municipal 1. Outstanding
2. Ashok's A/c Corporation A/c Expenses A/c Tangible Intangible
3. Suha's A/c 2. Radhika Sports Real Real
2. Prepaid Ex-
Account Account
Club A/c penses A/c
3. Bank of India A/c 3. Income re- 1. Computer A/c 1. Goodwill A/c
2. Cash A/c 2. Patent A/c
ceived in Ad-
vance A/c 3. Machinery A/c 3. Copyrights A/c
4. Accrued
income /
outstanding Expenses Income
And Losses and Gains
Income.
1. Stationary A/c 1. Interest Re-
2. Purchase A/c ceived A/c
3. Advertisement A/c 2. Discount Re-
ceived A/c
3. Sales A/c
Each type of accounts is explained below with examples-
1) Personal Accounts :
This account represents a person and group of persons with whom business deals.
These accounts are classified into following three categories:-
a) Natural Person's Account:
Accounts relating to individual human beings. e.g. Rajesh’s A/c, Sumit's A/c,
Sushma'sA/c, Vaibhav’s A/c etc.
b) Artificial Person's Account:
Artificial persons means includes accounts of organizations, associations
which are created by law.
E.g. Bank of Maharashtra A/c, ABC & Co A/c, Recreation Club A/c.
c) Representative Personal Account:
These Accounts represent a certain person or group of person in business
dealing. Accountsrelating to outstanding and prepaid items are called
representative personal account
E.g. Outstanding Rent A/c, Income received in advance A/c, Prepaid Wages
A/c etc.
2) Impersonal Account:
Impersonal Accounts are classified into following two categories;-
1. Real Accounts:
This account represents assets and properties owned by the business. The following
are the typesof Real Account.
a) Tangible Real Account:
Tangible real account means the Assets and properties, which can be seen,
touched and felt. E.g. Machinery A/c, Motor Car A/c, Stock of Goods A/c etc.
b) Intangible Real Account:
Intangible Real account means assets which cannot be seen, touched, or felt
but they can be measured in terms of money e.g. Goodwill A/c, Patents A/c,
Trademark A/c, CopyrightA/c etc.
2. Nominal Accounts:
The account of expenses, losses, income and gains are called as Nominal accounts
e.g. Wages A/c, Stationery A/c, Salary A/c, Depreciation A/c Commission
Received A/c, Discount Received A/c etc.
2
Debit and Credit
1) Debit (Dr.):
Left hand side of an Account is called Debit (Dr) side.
2) Credit (Cr):
Right hand side of an Account is called Credit (Cr) side.
Exercise 1: Classify the following accounts under the types of Personal, Real and
Nominal account
1) Mr. Rohit’s capital A/c 2) Loose Tools A/c
3) Drawing A/c 4) Cartage A/c
5) Prepaid Rent A/c 6) Copyright A/c
7) Patent A/c 8) Outstanding Income A/c
9) Prepaid Expenses A/c 10) Commission Received A/c
11) Freight A/c 12) Plant and Machinery A/c
13) Sundry Income A/c 14) Live Stock A/c
15) Goods distributed as free sample A/c 16) Radhika`s A/c
17) Outstanding Wages A/c 18) Loss on Sale of Furniture A/c
19) Bank of Maharashtra A/c 20) Loan A/c
21) Computer A/c 22) Legal Expenses A/c
23) Fixed Deposit A/c 24) Income Receivable A/c
25) Audit Fees A/c 26) Trademark A/c
27) Loss by fire A/c 28) Motor Car A/c
29) Income tax A/c 30) GST A/c (Goods and Service Tax)
31) Siddhivinayak Trust A/c 32) Office Equipment A/c
33) Stock of Stationery A/c 34) Indian Railways A/c
35) Income Received in Advance A/c 36) Dividend on Investment A/c
37) Discount A/c 38) Raj & company A/c
39) Repairs A/c 40) Royalty A/c
3
4
5
6
2.1 Golden Rules of Debit and Credit (Traditional Approach):
Golden Rules of Debit and Credit for different Accounts
Personal Accounts Real Accounts Nominal Accounts
u Debit the receiver u Debit what comes in u Debit all expenses
u Credit the giver u Credit what goes out and losses
u Credit all incomes
and gains
I) From the following transactions find out
1) Two aspects 2) Two accounts 3) Classify the accounts
1) Commenced business with Cash ` 20,000.
2) Purchased goods on credit from Ajay ` 10,000.
3) Cash Sales ` 7,000.
4) Received commission ` 500.
5) Paid Rent ` 800.
Solution :
1) Two Aspects
Sr. No. Aspect I Aspect II
1) Cash comes in Proprietor is giver
2) Purchases is an expenditure Ajay is giver
3) Cash comes in Sales is an income
4) Cash comes in Commission received is an income
5) Rent is an expenses Cash goes out
2) Two Aspects and Two Accounts.
Sr. No. Two aspects Two accounts
1 Cash comes in. Cash A/c -------------
Business Proprietor is giver ------------- Capital A/c
2 Purchases is an expense. Purchases A/c -----------
Ajay is giver ------------- Ajay A/c
7
3 Cash comes in. Cash A/c -----------
Sales is an income ------------- Sales A/c
4 Cash comes in. Cash A/c ---------------
Commission is an income ------------- Commission A/c
5 Rent is an expense. Rent A/c ---------
Cash goes out ------------- Cash A/c
