Accountancy · Ch 3 — Books of Prime Entry
Classification of Accounts and the Traditional (British) Approach
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Classification of Accounts and the Traditional (British) Approach
Before an entry can be journalised, every account it touches must first be classified into one of three types, because each type follows its own rule for debit and credit.
| Type of Account | Meaning | Examples | Rule |
|---|---|---|---|
| Personal Account | Accounts of persons, firms, companies or organisations with whom the business deals | Ram's A/c, ABC Bank A/c, Capital A/c, Drawings A/c | Debit the Receiver, Credit the Giver |
| Real Account | Accounts of assets and properties, whether tangible or intangible | Cash A/c, Machinery A/c, Furniture A/c, Goodwill A/c | Debit what comes in, Credit what goes out |
| Nominal Account | Accounts of expenses, losses, incomes and gains | Rent A/c, Salary A/c, Commission Received A/c, Interest A/c | Debit all expenses and losses, Credit all incomes and gains |
Personal accounts are further divided into Natural (an individual, e.g. Ram), Artificial (a body created by law, e.g. a company, bank or partnership firm), and Representative (an account that represents a group of persons, e.g. Outstanding Salary A/c represents the employees to whom salary is owed). …