Chapter 2 classification accounts

Types of accounts

• Two categories – personal account , impersonal account

• Personal account – A/c related to all names (it can be name of person, institutes )noun comes it
is a personal account –natural personal account ,( sony corporation ltd, l& t ltd , JB steel ltd –
Artificial account)
• Representative personal account –outstanding salary (expenses pending to pay or expenses paid
in advance )
• Expenses comes under the nominal category
• Impersonal account is divided into two categories real A/c and nominal A/c
• Real a/c- all property and assets
• Assets- tangible and intangible assets
• Tangible assets – land and building (which we can touch), furniture , lease premises (properties)
• Intangible Assets- the assets cannot be seen (E,g Goodwill-reputation )(intangible assets cannot
be property)
• Patents – this formula invented by me , copy right
• Nominal account- accounts related to all income and gains , expenses and losses
• Normal people – purchase of car is expense , petrol is expenses for them it’s a nominal account
• Amount incurred by the person for getting some property is a real account and amount incurred
by the person for services like electricity bill that is called nominal account
• Payment of electricity –nominal A/c, payment for electrical pump-real A/c
• Interest –received or paid it’s a nominal A/c
• Rent – payment of rent and rent received both are nominal
• Discount allowed and discount received Nominal A/c
• Wages , salary A/c- Nominal, if salary not paid – it’s a personal , rent due –personal, rent paid –
nominal, rent paid in advance –personal
• Loss by fire, loss by sale of assets-Nominal
• Bad Debts –the debts which is irrecoverable it is called bad debts
• Reduction in the value of assets –depreciation , it’s a loss –Nominal A/C

Rules to be applied after classification of A/c

• Three golden rules

• Personal A/c- debit the receiver and credit the giver
• For eg.paid cash to ramesh , Ramesh’s A/c……………………….Dr
To Cash A/c
 • Two sides , left side debit side, right side credit side
• Paid cash to Ajay, Ajay’s A/c………….Dr
To cash A/c
• Received cash from Ajay , Cash A/C……….Dr
To Ajay’s A/c
• Real Account – accounts related to all properties or assets , either comes in or goes it , it’s says
that debit what comes in and credit what goes out
• For e.g. , machinery A/c and cash A/c , purchased machinery for cash
Machinery A/c……….Dr
To Cash A/c
• One more E.g. sold machinery for cash , Rs.10,00,000
Cash A/c………………..10,00,000…..Dr
To Machinery A/c ……10,00,000
• Nominal A/c –accounts related to all expenses and losses, income and gains, rule – whenever
there is loss debit all losses and expenses , credit all income and gains (Eg , dukh debit and such
credit )
• Paid rent , Rent A/c……………..Dr
To Cash A/c
• Received Interest, Cash A/c ……..Dr
To Interest A/c
• Paid cash to ramesh , Remesh A/c ………Dr
To cash A/c
• Received cash from ramesh , cash A/c……Dr
To Ramesh A/c
• Business transaction first recorded in books called journal and ledger
• Journal is books of prime entry ,
• From journal it transfer to ledger
• Ledger A/c balance carry forward to next month , End of the year balances of the ledger taken as
a trial balance
• Trial balance is a list of ledger accounts (all categories of transactions assets and liabilities )
• After the trial balance two financial statements –revenue statements and balance sheet
• Return of goods (credit note ), return good from customer (debit note )

How to record the transaction

• Cash invested into business – entity concept

• Rajesh has invested into business two accounts effected , cash A/c and rajesh A/c, we will
record cash a/c and rajesh Capital a/c ,
• Think in companies point of view cash is coming in and rajesh is giving the money so entry will
be Cash A/c ……100000…Dr
To Rajesh’s A/c ……100000
• When you have to credit in just right to , To rajesh A/c
• Dual Aspect concept – for every action there is opposite reaction similar in accounts every
transaction we have two effects one is debited one is credited in same value , in every
transaction minimum two accounts are effected , total of credit should be equal to total of debit
• Journals 1).Cash paid to Rahul , 2) cash received from salman

Date Particulars L/F Debit Credit

11-08-18 Rahul’s A/c …..Dr 40,000
To Cash A/c 40,000
(narration :- being cash paid to
rahul)
11-08-18 Cash A/c ….Dr 40,000
To Salman’s A/c 40,000
(Being Cash received from
Salman-receipt no-XXX)