Golden Rules of Accounting

Types of Accounts / Classification of Accounts:

   All business transactions are broadly classified into three categories

• Those relating to persons 
• Those relating to property (assets)
• Those relating to income and expenses

   Thus, three classes of accounts are maintained for recording all business transactions. They are,

1. Personal Accounts
2. Real Accounts
3. Nominal Accounts

  

Accountinglifecycle.blogspot.com

    Personal Accounts:

• Accounts which shows transactions with persons are called 'Personal accounts'
• A separate account is maintained in the name of each person for recording the benefits received from, or given to the person in the course of dealings with him.
• Personal accounts also include accounts in the name of firms, companies or institutions.

Impersonal Accounts:

    Impersonal accounts are two types they are,

Accountinglifecycle.blogspot.com

•  Real accounts
•  Nominal accounts

  Real Accounts:

• Accounts relating to properties or assets are known as 'Real accounts'.
• These are the accounts of all the assets and liabilities of the organization. 
• Every business needs assets such as machinery, furniture etc., for running its activities. A separate account is maintained for each asset owned by the business.

  Tangible Real Account: It consists of assets, properties or possessions that can be touched, seen and measured. 

   For example:

   Plant A/c, 

   Furniture and Fixtures A/c,

   Cash A/c, etc.

Intangible Real Account: It consists of assets or possessions that cannot be touched, seen and measured but possess a monetary value and thus can be purchased and sold also.

 For example: 

 Goodwill, 

 Patents, 

 Copyrights, etc.

Nominal Accounts:

• Accounts relating to expenses, losses, incomes and gains are known as 'Nominal Accounts'
• A separate account is maintained for each item of expenses, loss, income or gain.
• Wages account, salaries account, commission received account and interest received account are some of the examples of Nominal accounts.

Golden Rules of the Accounts: 

  Before recording transactions it is necessary to know which of the account is to be debited and which is to be credited. There are three different rules, they are

Accountinglifecycle.blogspot.com

 Personal accounts:

   The account of the person receiving benefit (receiver) is to be debited and the account of the person giving the benefit (giver)

is to be credited

    " Debit the receiver 

     Credit the giver"

 Real accounts:

  When an asset is coming into the business, the account of that asset is to be debited. When an asset is going out of the business, the account of that asset is to be credited.

     "Debit what comes in 

      Credit what goes out"

Nominal accounts:

     When an expense is incurred or loss suffered, the account representing the expense or loss is to be debited. When any income is earned or gain made, the account representing the income or gain is to be credited.

  " Debit all expenses and losses

    Credit all incomes and gains"

Accountinglifecycle.blogspot.com