Every transaction has two aspects and each aspect has an account. It is stated that ‘an account is a summary of relevant transactions at one place relating to a particular head’. 3.2.1 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
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Accounts
Personal
Natural Real Nominal Artificial Representative
Impersonal
Tangible Intangible
i. Personal Accounts : The accounts which relate to persons. Personal accounts include the following. i. Natural Persons : Accounts which relate to individuals. For example, Mohan’s A/c, Shyam’s A/c etc. ii. Artificial persons : Accounts which relate to a group of persons or firms or institutions. For example, HMT Ltd., Indian Overseas Bank, Life Insurance Corporation of India, Cosmopolitan club etc. iii. representative Persons: Accounts which represent a particular person or group of persons. For example, outstanding salary account, prepaid insurance account, etc. The business concern may keep business relations with all the above personal accounts, because of buying goods from them or selling goods to them or borrowing from them or lending to them. Thus they become either Debtors or Creditors. The proprietor being an individual his capital account and his
drawings account are also personal accounts. ii. 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.
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Illustration : 1 Classify the following items into Personal, Real and Nominal Accounts. 1. Capital 2. Sales 3. Drawings 4. Outstanding salary 5. Cash 6. Rent 7. Interest paid 8. Indian Bank 9. Discount received 10. Building 11. Bank 12. Chandrasekar 13. Murugan Lending Library 14. Advertisement 15. Purchases Solution: 1. Personal account 2. Real account 3. Personal account 4. Personal (Representative) account 5. Real account 6. Nominal account 7. Nominal account 8. Personal (Legal Body) account 9. Nominal account 10. Real account 11. Personal account 12. Personal account 13. Personal account 14. Nominal account 15. Real account