Documenti di Didattica
Documenti di Professioni
Documenti di Cultura
PROCESS
INTRODUCTION
CLASSIFICATION OF ACCOUNTS
Based on nature
1
implications of the financial
transactions during each fiscal year till
finalisation of accounts at the end
Example:
A sales account is opened for recording the sales of goods or services and at the end
of the financial period the total sales are transferred to the revenue statement account (Profit
and Loss Account or Income and Expenditure Account).
Similarly expenses during the financial period are recorded using the respective
Expense accounts, which are also transferred to the revenue statement account. The net
positive or negative balance (profit or loss) of the revenue statement account is transferred to
reserves or capital account as the case may be.
The classification of accounts into real, personal and nominal is based on their nature
i.e. physical asset, liability, juristic entity or financial transaction. The further classification of
accounts is based on the periodicity of their inflows or outflows in the context of the fiscal
year.
Income
Expense
Asset
2
Liability
Liability is long term outflow with implications extending beyond the financial period
and by the traditional view could represent unamortised expense. Alternatively, a liability
could be valued at the present value of future outflows.
Items in accounts are classified into five broad groups, also known as the elements of
the accounts: Asset, Liability, Equity, Revenue, Expense. The classification of Equity as a
distinctive element for classification of accounts is disputable on account of the "Entity
concept", since for the objective analysis of the financial results of any entity the external
liabilities of the entity should not be distinguished from any contribution by the shareholders.
Personal accounts
Real accounts
o Tangible accounts
o Intangible accounts
Personal Accounts
3
Natural Personal Account
An account related to any individual like David, George, Ram, or Shyam is called as a
Natural Personal Account.
An account related to any artificial person like M/s ABC Ltd, M/s General Trading,
M/s Reliance Industries, etc., is called as an Artificial Personal Account.
Real Accounts
Every Business has some assets and every asset has an account. Thus, asset account is
called a real account. There are two type of assets:
Tangible assets are touchable assets such as plant, machinery, furniture, stock,
cash, etc.
Intangible assets are non-touchable assets such as goodwill, patent, copyrights,
etc.
Nominal Accounts
Since this account does not represent any tangible asset, it is called nominal or
fictitious account. All kinds of expense account, loss account, gain account or income
accounts come under the category of nominal account. For example, rent account, salary
account, electricity expenses account, interest income account, etc.
4
CONCLUSION
The first step to recording your company's financial transactions is creating a chart of
accounts. This is a list of accounts you will use to classify financial transactions. Each
account you create is either an asset, liability, equity, expense or revenue account. Select the
type of account based on what the account is for. For example, classify a bank account as an
asset because a bank account holds the company's cash. Assets are what the business owns.
Classify a supplies account as an expense because you spend money on supplies to run the
business.
REFERENCES
https://en.wikipedia.org/wiki/Account_%28accountancy%29
http://www.studylecturenotes.com/accounting-finance/classification-of-accounts-
personal-real-nominal-accounts
https://www.tutorialspoint.com/accounting_basics/accounting_classification_of_a
ccounts.htm
http://smallbusiness.chron.com/bookkeeping-classification-accounts-55421.html
http://accountlearning.blogspot.in/2010/06/accounting-process-or-cycle-and-
its.html