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Classification of Accounts
Transactions can be divided into three categories.
i. Transactions relating to individuals and firms
ii. Transactions relating to properties, goods or cash
iii. Transactions relating to expenses or losses and incomes or gains.
Therefore, accounts can also be classified into Personal, Real and Nominal. The classification may be illustrated as follows
Personal Accounts:
Accounts recording transactions relating to individuals or firms or company are known as personal accounts. Personal accounts may further be classified as:
(i) Natural Person’s personal accounts: The accounts recording transactions relating to individual human beings e.g., Anand’s a/c, Ramesh’s a/c, Pankaj a/c are classified as natural persons’ personal accounts.
(ii) Artificial Persons’ Personal accounts: The accounts recording transactions relating to limited companies, bank, firm, institution, club, etc., Delhi Cloth Mill; M/s Sahoo & Sahoo; Hans Raj College; Gymkhana Club are classified as artificial persons’ personal accounts.
(iii) Representative Personal Accounts: The accounts recording transactions relating to the expenses and incomes are classified as nominal accounts. But in certain cases (due to the matching concept of accounting) the amount, on a particular date, is payable to the individuals
or recoverable from individuals. Such amount (i) relates to the particular head of expenditure or income and (ii) represent persons to whom it is payable or from whom it is recoverable. Such accounts are classified as representative personal accounts e.g., “wages outstanding account”, pre-paid Insurance account, etc.
The proprietor being an individual his capital account and his drawings account are also personal accounts.
Impersonal Accounts
All those accounts which are not personal accounts. This is further divided into two types viz. Real and Nominal accounts.
i. Real Accounts: Accounts relating to properties and assets which are owned by the business concern. Real accounts include tangible and intangible accounts. For example, Land, Building, Goodwill, Purchases, etc.
ii. Nominal Accounts: These accounts do not have any existence, form or shape. They relate to incomes and expenses and gains and losses of a business concern. For example, Salary Account, Dividend Account, etc.
Rules of debit and credit (classification based)
1. Personal accounts : Debit the receiver - Credit the giver (supplier)
2. Real accounts : Debit what comes in - Credit what goes out
3. Nominal accounts : Debit expenses and losses - Credit incomes and gains
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