2 Classifications and Methods of Accounting

Classification of Accounts:-

I) Personal Accounts:-

1) Natural Personal Accounts –

• Accounts that relate to individual humans are called as Natural Personal Accounts.

• Examples: Mr. J’s Account, Miss. F’s Account

2) Artificial Personal Accounts –

• Artificial Persons have a common seal, authorized signatory and perpetual (continuous) existence like a human.

• Example: So, Accounts that relate to Firms, Companies etc., Examples: k Ltd Company’s Account.

3) Representative Personal Accounts – 

• Accounts relating to capital, drawings, out standings , and pre paid items are grouped under this head.

• Examples: Ms.Bhavani’s Capital Account, Ms. Surya’s Drawings Account, Outstanding Rent Account, Pre Paid Insurance Premium Account, Interest Received in Advance Account, Commission Accrued Account( Earned but not received) 

II) Real Accounts:-

• Accounts relating to assets and liabilities can be called as ‘Real Accounts’.

• Examples: Purchases Account (Goods Account), Returns Inward Account (Goods Account), Salary Outstanding Account, Furniture and Fittings Account, Cash Account, ICICI Loan Account etc., 

III) Nominal Accounts:-

• Accounts relating to expenses, losses, incomes and gains come under the head ‘Nominal Account’.

• Example :- Salary account, Interest Received account.

Accounting Methods:-

· Single Entry System

· Double Entry System

• Single Entry System:-

• — Single Entry System does not mean that there is only one entry for each transaction.

• — It simply signifies that principles of double entry book keeping have not been observed in all cases.

• — Under this system, personal accounts and the cash book are maintained.

• — Impersonal accounts like purchases account, sales account, assets account etc are ignored.

• — This system is ideal for small concerns and entities with limited transactions. 

• Double Entry System:-

• Every transaction has two aspects.

• — One is benefit receiving aspect or incoming aspect and the other one is benefit giving aspect or outgoing aspect.

— Benefit receiving aspect- ‘debit’

— Benefit giving aspect - ‘credit’

• — To have a complete record of a transaction, one account is to be debited while the other is to be credited.

• — So, every transaction affects two accounts in opposite direction.

• — For every debit there will be a corresponding credit of equal amount and vice versa.

• This is the concept of Double Entry System.