Professional Documents
Culture Documents
All the accounting heads used in an organisational accounting system are divided into three
kinds/types. Every account head should be capable of being classified under one of the three
kinds/types.
Personal Accounts
The elements or accounts which represent persons and organisations.
Real Accounts
The elements or accounts which represent tangible aspects.
Tangible
Perceptible by the senses especially the sense of touch
having physical substance and intrinsic monetary value
palpable
real
touchable
In the initial stages of learning accounting, we assume real accounts to be those representing
tangible elements. This is because all the elements that we deal with at this stage have that
characteristic.
There is no hard and fast rule that all assets should be tangible.
There are many other ways the terms Real accounts and the term asset can be interpreted and
understood. For now, please, stick to the simple understanding that assets are tangible aspects and
are thus identified as real accounts.
Nominal Accounts
The elements or accounts which represent expenses, losses, incomes, gains.
We do not come across such accounts till a later stage of our learning. For now, please,
assume that such accounts exist.
Profit on sale of Asset a/c - representing the profit made on sale of assets, a gain.
We do not come across such accounts till a later stage of our learning. For now, please,
assume that such accounts exist.
We use this property to identify the nature of an account sometimes. Where an account cannot be
classified under two types, it should be the third type.
Nominal accounts are accounts other than Personal and Real accounts
Real accounts are accounts other than Personal and Nominal accounts
Personal accounts are accounts other than Real and Nominal accounts
Where the information needed by the organisation is very minimal, it can account for the
transactions relating to its business with a minimum of four accounting heads.
All the real accounts and the personal accounts representing debtors are to be assumed
to be represented by the account head named Asset a/c. Asset a/c would take the place
of Furniture a/c, Machinery a/c, Land a/c, Buildings a/c, Shyam's a/c (debtor), Bank a/c,
Cash a/c etc.
Liabilities a/c
Only one account head (say by name Liabilities a/c) is used to record all the information
relating to the liabilities of the organisation.
Liabilities are generally made up of personal accounts representing owned capital and
loaned capital. Liabilities a/c would take the place of Capital a/c, Ram's a/c (creditor)
etc.
Note : Assets and Liabilities include only accounts of the type Real and Personal.
Expenses/Losses a/c
Only one account head (say by name Expenses/Losses a/c) is used to record all the
information relating to the expenses and losses relating to the organisation.
All the nominal accounts representing expenses and losses are to be assumed to be
represented by the account head named Expenses/Losses a/c
Incomes/Gains a/c
Only one account head (say by name Incomes/Gains a/c) is used to record all the
information relating to the incomes and gains relating to the organisation.
All the nominal accounts representing incomes and gains are to be assumed to be
represented by the account head named Incomes/Gains a/c
Thus to have a clear and better understanding/information regarding liabilities, the Liabilities a/c is
replaced by two accounts: Capital a/c and Liabilities a/c.
The more the information we need the more the accounting heads we have to maintain.
Therefore, the minimum accounting heads to be maintained would be 5 i.e. Capital a/c, Liabilities
a/c, Assets a/c, Expenses/Losses a/c, Incomes/Gains a/c.
Capital a/c
↓
Person
↓
Personal a/c
Cash a/c
↓
Tangible Aspect (Asset)
↓
Real a/c
Furniture a/c
↓
Tangible Aspect (Asset)
↓
Real a/c
Cash a/c
↓
Tangible Aspect (Asset)
↓
Real a/c
Goods/Stock a/c
↓
Tangible Aspect (Asset)
↓
Real a/c
Cash a/c
↓
Tangible Aspect (Asset)
↓
Real a/c
Goods/Stock a/c
↓
Tangible Aspect (Asset)
↓
Real a/c
Goods/Stock a/c
↓
Tangible Aspect (Asset)
↓
Real a/c
Cash a/c
↓
Tangible Aspect (Asset)
↓
Real a/c
Goods/Stock a/c
↓
Tangible Aspect (Asset)
↓
Real a/c
Cash a/c
↓
Tangible Aspect (Asset)
↓
Real a/c
Bank a/c
↓
Organisation
↓
Personal a/c
Cash a/c
↓
Tangible Aspect (Asset)
↓
Real a/c
Cash a/c
↓
Tangible Aspect (Asset)
↓
Real a/c