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Classification of Accounts:
1. Personal accounts- The accounts that relates to person.

Personal accounts include the following:

Natural Person-: Accounts which relate to individual. For eg. Amit’s Account,
Shyam's Account etc.

Artificial Persons-: Accounts which relate to firms or institutions or

corporations etc. Eg., Pepsico India Ltd., State Bank Of India, Life Insurance
Corporation of India, etc.

Representative Persons-: Eg. prepaid insurance account, outstanding salary

account.

Note-: The proprietor being an individual, his Capital Account and his Drawing
Account are also Personal Account.

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.

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, discount, etc.

Classify under real, Nominal and Personal A/C

Prepaid salary Account

Bill payable Account

Rent Account

Proprietor’s Account

Patents Account

Golden rules of Accountancy:

Personal Account: Debit the receiver, Credit the giver.

Real Account: Debit what comes in, Credit what goes out
Golden rules of Accountancy:

Nominal Account: Debit all expenses and losses, Credit all incomes and gains.

Note: The classification of accounts and Golden Rules of Accountancy should be

remembered very well.

Journal

The first step in accounting is the recording of transactions in the books of

accounts. The origin of a transaction is derived from the source document.

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Source Document:

• Evidence of business transaction.

• Written and authentic proof of the correctness of the recorded

transactions.

• Required for audit and tax assessment.

• Also serve as the legal evidence in case of a dispute.

Some Common Source Document:

Cash Memo: When a trader sells goods for Cash, he gives a Cash Memo and
when he purchases goods for Cash, he receives a Cash Memo.

Some Common Source Document:

Invoice or Bill: When a trader sells goods on Credit, he prepares a Sale

Invoice. It contains full details relating to the amount, terms of payment and the
name and address of the seller and buyer. The original copy of the Sale Invoice
is sent to the Purchaser and its duplicate copy is kept for making records in the
books of accounts.

Receipt: When a trader receives Cash from a customer, he issues a receipt

containing the date, the amount and the name of the customer. The original
copy is handed over to the customer and the duplicate copy is kept for record. In
the same way when we make payment we obtain a receipt from the party to
whom we make payment.

Debit Note: Debit Note is prepared by the buyer and it contains the date of the
goods returned, details of the goods returned and reasons for returning the
goods. A duplicate copy or counterfoil of the Debit Note is retained by the buyer.

Credit Note: A Credit Note is prepared by the seller and it contains the date on
which goods are returned, name of the customer, deals of the goods received
back, amount of such goods and reasons for returning the goods.

Pay In Slip: Pay In Slip is a form available in banks and is used to deposit
money into a bank account. Each Pay in slip has a counterfoil which is returned
to the depositor duly sealed and signed by the bank official.

Books of Original Entry:

The books in which a transaction is recorded for the first time from the source
document are called Books of Original Enty or Prime Entry. Example: Journal,
Cash Book, etc.

Journal: Journal is a book in which a transaction is recorded for the first time
from a source document. In Journal all the transactions are recorded
chronologically (date-wise).

Journal is also called Books of Original Entry or Prime Entry.

Ledger folio (L.F.): In this column the number of the ledger page is written to
which the amount is posted in the ledger.

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Format of Journal

Date Particulars L.F. Debit Amt. (Rs.) Credit Amt. (Rs.)

Journal
Transaction 1.

Started or commenced business with Rs20000

Transaction 2

Goods purchased for Rs. 9,000 Or

Cash purchases Rs. 9,000

Transaction 3

Goods purchases from Mohan Rs. 18,000 Or

Goods purchases from Mohan on credit Rs. 18,000

Transaction 3

Goods returned to Mohan Or

Mohan admitted our claim for Rs. 100

Transaction 4

Cash sales for 7000.

Or Goods sold to Mohan for cash

Transaction 5

Goods sold to Mohan for 4000 or Goods sold to Mohan on credit

Goods of Rs 100 returned by Mohan

Transaction 6

Furniture purchased for Rs 12000

Transaction 6

One Furniture sold for Rs 2000

Transaction 6

Salaries paid Rs 1200

Transaction 7

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Rent Received Rs 200

Transaction 7

Rent Received Rs 200

Transaction 7

Amount Received from Mohan Rs 900

Discount allowed to him Rs 100

Transaction 8

Depreciation on Machinery Rs 100

Interest on capital Rs 150

Transaction 9

Amount withdrawn for personal use Rs 150

Transaction 10

Goods withdrawn for personal use Rs 100

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