Punjab Institute of Management and Technology

ACCOUNTING

CLASSIFICATION OF ACCOUNTS

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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.

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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.
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TRADITIONAL CLASSIFICATION OF ACCOUNTS

ACCOUNTS

PERSONAL IMPERSONAL
ACCOUNTS ACCOUNTS

REAL NOMINAL
ACCOUNTS ACCOUNTS
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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”

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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.

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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.
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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.

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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”.

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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
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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.
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Example:
Example:
From
From the
the following
following transactions,
transactions, state
state the
the nature
nature ofof accounts
accounts and
and state
state which
which
account
account will
will be
be debited
debited and
and which
which account
account will
will be
be credited.
credited.

1 Mr. A started business 5

Sold goods to B for Rs.6,000.
. with Rs.50,000 .

2 Purchased goods for 6

Purchased furniture for Rs.4,000.
. cash Rs.10,000. .

3 Sold goods for cash 7

Purchased plant or Rs.10,000.
. Rs.15,000 .

4 Purchased goods from 8

Paid wages Rs.400
. X for cash Rs.5,000 .

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Solution:
Solution:
S
Accounts Involved Nature of Accounts Debit or Credit
N.
       
1. Cash account Real Debit (incomings)
  Capital account Personal Credit (giver)
2. Purchases account Nominal Debit (expenses)
  Cash account Real Credit (outgoings)
3. Cash account Real Debit (incomings)
  Sales account Nominal Credit (income)
4. Purchases account Nominal Debit (expenses)
  Cash account Real Credit (outgoings)
5. B account Personal Debit (receiver)
  Sales account Nominal Credit (income)
6. Furniture account Real Debit (incomings)
  Cash account Real Credit (outgoings)
7. Plant account Real Debit (incomings)
  Cash account Real Credit (outgoings)
8. Wages account Nominal Debit (expenses)
  Cash account Real Credit (outgoings)
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   Modern
Modern Classification
Classification of
of Accounts:
Accounts:

1.
1. Assets
Assets account
account
2.
2. Liabilities
Liabilities account
account
3.
3. Capital
Capital account
account
4.
4. Revenue
Revenue account
account
5.
5. Expenditure
Expenditure account
account

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Rules
Rules of
of Debit
Debit and
and Credit
Credit When
When Accounts
Accounts are
are Classified
Classified
According
According to 
to  Modern
Modern Classification
Classification of
of Accounts:
Accounts:

S Account to be
Types of Account Account to be Credited
N. Debited
       
1. Assets account Increase Decrease
2. Liabilities account Decrease Increase
3. Capital account Decrease Increase
4. Revenue account Decrease Increase
5. Expenditure account Increase Decrease

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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/-.

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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
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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

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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)

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