Traditional Classification of Accounts

 TRADITIONAL CLASSIFICATION OF ACCOUNTS:

A) Personal Accounts:-These accounts relate to natural persons(Ram, Mohan, etc.), artificial/ Legal persons( Govt. companies, Clubs, co-operative societies, etc and representative persons( capital a/c, Drawing A/c, Prepaid a/c, outstanding exp A/c.

B) Impersonal Accounts:

i. Real Accounts:- These accounts relate to the tangible or intangible real assets (i.e. accounts of properties and assets): and

ii. Nominal Accounts:-These accounts relate to incomes, expenses or losses.

RULES (imp):—The following three are the basic rules ( traditional method)for recording the transaction:-

Personal Accounts: Debit the receiver and credit the giver.

Real Accounts: Debit what comes in and credits what goes out.

Nominal Accounts: Debit all exp. (and losses) and credit all incomes & gains.

The left-hand side of an account is called the debit side and the right-hand side of an account is called the credit side.

      ACCOUNTING EQUATION BASED CLASSIFICATION

1.Assets Accounts	These accounts relate to tangible or intangible real assets. Eg. Land A/c, Building A/c, Patents, Goodwill, trademark etc.
Liabilities Accounts	These accounts relate to the financial obligations of an enterprise towards outsiders. Eg. Trade Creditors, Bills Payable, Bank Overdraft, Loans, Outstanding Exp. etc.
Capital Accounts	These accounts relate to owners of an enterprise. Eg. Capital A/c, Drawings A/c.
Revenue Accounts	These accounts relate to the amount charged for goods sold or services rendered or permitting others to use enterprise’s resources yielding interest, royalty or dividend. Ex. Sales A/c, Discount Received A/c, Dividend Received A/c, Interest Received A/c.
Expenses Accounts	These accounts relate to the amount incurred or lost in the process of earning revenue. Ex. Purchase A/c, discount allowed A/c, Royalty paid A/c, Interest Payable A/c, Loss by Fire A/c etc.

 

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