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 IMPERSONAL
ACCOUNTS ACCOUNTS

REAL NOMINAL
ACCOUNTS 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

Debit the Receiver

Personal
Account
Credit the Giver

Debit what comes in

Real Accounts Credit what goes
out
Debit all Expenses
Nominal and Losses
Accounts 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 in

which all transactions are recorded in the form of
entries. Journalising is an act of recording or
entering transactions in a Journal in the order of
date.
Date Particulars LF Debit Credit
Amount Amount
 Journal Entry

Jan 1, 1981 Prakash Started a business Rs.

15,000/-
Date Particulars LF Debit Credit
Amount Amount
1981 Cash a/c 15,000
Jan 1 Dr. 15,000
To Prakash’s Capital
a/c
(Being cash invetsed to
business)